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Reed v. Davis

Court of Appeals of Texas, Sixth District, Texarkana

March 24, 2017

PERRY D. REED AND PERRY D. REED & COMPANY, P.C., Appellants
v.
JAMES T. DAVIS, CPA, JAMES T. DAVIS, P.C., DAVIS GRIFFIN, LLP, Appellees

          Submitted: November 28, 2016

         On Appeal from the County Court at Law No. 2 Gregg County, Texas Trial Court No. 2015-946-CCL2

          Before Morriss, C.J., Moseley and Burgess, JJ.

          MEMORANDUM OPINION

          Josh R. Morriss, III Chief Justice

         At a meeting called to identify and work through differences between two pediatric dentists who were in the process of ending and dividing their joint practice, James T. Davis, the accountant for Ronald N. Fadal, DDS, P.A., offered his tentative concern that Fadal's partner, Justin R. Horne, DDS, may have improperly received distributions of some $1.2 million more than Fadal, an apparent discrepancy that needed to be examined further. Davis' utterance resulted in a May 2015 lawsuit by Perry D. Reed and his professional corporation (collectively Reed) against Davis and two related entities (collectively Davis), [1] setting out claims of defamation, business disparagement, and tortious interference with prospective relations. Reed had been the accountant for the dental partnership, while Davis had been retained later by the attorneys for Fadal to help in the practice separation process.

         In response to Reed's lawsuit, Davis filed a traditional and no-evidence motion for summary judgment as to all three of Reed's claims. Following a hearing on Davis' motion, the trial court granted summary judgment to Davis on each of Reed's claims on both traditional and no-evidence grounds. The no-evidence summary judgment was granted based on the trial court's ruling that there was no evidence of actual malice or damages, thus defeating all three of Reed's claims. The summary judgment was also rendered on traditional grounds on all three claims based on the trial court's ruling that qualified privilege and judicial privilege were established as a matter of law.

         On appeal, Reed complains of the trial court's (a) discovery rulings that upheld Davis' assertions of the work-product exemption, the attorney-client privilege, and the consulting expert privilege;[2] (b) traditional summary judgment sustaining Davis' affirmative defenses of judicial privilege and qualified privilege; (c) no-evidence summary judgment on Reed's defamation claim on the basis that Reed raised fact issues regarding evidence of damages; and (d) no-evidence summary judgment on Reed's business-disparagement and tortious-interference claims on the basis that Reed raised fact issues regarding actual malice and special damages.

         We affirm the trial court's judgment, because (1) there was no abuse of discretion in denying discovery of Davis' Fadal file based on Davis' privilege assertions; (2) traditional summary judgment was proper on Reed's claims for defamation and business disparagement, because conclusive proof established Davis' defense of qualified privilege; and (3) no-evidence summary judgment was proper on Reed's claim for tortious interference with prospective business relations, because there was no evidence of damages. History

         In 2007, Fadal and Dr. Justin Horne, President of Justin R. Horne, DDS, P.A., entered into a partnership agreement forming a limited-liability partnership known as Pediatric Dental Associates, L.L.P. (PDA), with each of their respective professional associations (PAs) serving as general partners. PDA had locations in Longview and Marshall owned by Fadal-Horne Investment, LP, for which both Horne and Fadal served as limited partners and Pediatric Dental Associates, L.L.P., served as general partner. Reed was hired as the accountant performing a full range of accounting services for PDA. Eventually, Fadal's wife, Dr. Jennifer Rogers (Jennifer) began working for or with PDA.

         After practicing together for over six years, Horne and Fadal sought to dissolve the partnership. Reed drafted a memorandum of understanding (MOU) for the dissolution of the partnership.[3] Soon, conflicts arose between Fadal and Horne relating to the dissolution of the partnership. As a result, Fadal decided to terminate Reed as his accountant and to hire attorneys, Robert Foster and Jerry Hill, to represent him during the dissolution of the partnership. After Fadal retained Foster and Hill, Foster hired Davis as an accounting expert to assist in representing Fadal. During this time period, Reed resigned from serving Horne as a client. Horne then elected to use attorney Matthew Hill as his representative during the dissolution, as well as Rodney Overman as his accounting expert. The parties also hired a new accountant for partnership matters, Robert "Bob" Rogers.

         After Davis was retained, he began to prepare an accounting of the PDA partnership, using information that had been given to him by Foster. After Davis discovered what he believed was an apparent disparity in the accounting favoring Horne, [4] the parties set up a meeting for May 27, 2014 (the meeting). The purpose of the meeting was to discuss the dissolution of the partnership and the issue of disparity and to determine what information would be needed to assist the parties in resolving the issues.[5] Horne's lawyer, Matthew Hill, recalled Davis' statement during the meeting as follows:[6]

[Davis] -- was the first person to speak at the meeting; and he said that Dr. Rogers was put under Fadal Pediatric -- Dr. Fadal's individual PA and not under the partnership Pediatric Dental Associates and, as a result of that -- and, obviously the disparity in distributions that we talked about, his -- Dr. Fadal was harmed to the tune of $1.2 million and that it was his opinion that Perry Reed showed favoritism towards one partner over the other in providing that advice, in doing that, and that he thought that it hurt Dr. Horne, as well, financially, because now he's going to have to make all this stuff up.[7]

         In his first amended original petition, Reed alleges, "Shortly after the meeting convened, Defendant James Davis represented to all present that Perry Reed's accounting advice and services had served to favor Dr. Horne over Dr. Fadal in the amount of $1, 200, 000." This statement, allegedly made by Davis, is the basis for Reed's claims of defamation, [8] business disparagement, [9]and tortious interference with prospective business relations.[10] Reed maintains that "these false statements "had the effect of implying that Plaintiffs breached their fiduciary duty to Pediatric Dental Associates, LLP[, ] and Dr. Fadal in order to benefit one partner over another." Reed also claims that he lost business as a result of Davis' statements. Davis filed a general denial and also maintained that judicial immunity and qualified immunity were applicable to the facts of this case.

         Discovery issues soon ensued. In particular, Reed sought the discovery of Davis' file on Fadal relating to the dissolution of PDA. Davis objected to Reed's request on the grounds that the contents of Davis' file were protected by the work-product exemption, the attorney-client privilege, and the consulting-expert privilege. After reviewing Davis' privilege logs and conducting several in camera inspections, the trial court sustained many of Davis' privilege assertions; however, it also overruled some of Davis' assertions on the grounds of waiver and ordered the disclosure of information that was directly related to Davis' opinions at the May 27 meeting.

         After the requisite discovery process was completed, Davis filed the motion for summary judgment. In addition to arguing that there was no factual evidence to support any of Reed's three claims, Davis also maintained that (a) his expressed opinions and beliefs as a retained expert were not actionable assertions of fact; (b) his preliminary opinions were true or substantially true and were made without malice or negligence; (c) qualified privilege was applicable to Reed's business disparagement claim because the May 27 meeting was a closed-door meeting and only included parties and their representatives who had an interest in the topics discussed; (d) judicial privilege barred Reed's defamation action because Davis' statements were made in the context of a quasi-judicial forum and were absolutely privileged; and (e) Reed suffered no damages. The trial court granted both the no-evidence and traditional portions of the motion for summary judgment.[11]

          1. There Was No Abuse of Discretion in Denying Discovery of Davis' Fadal File Based on Davis' Privilege Assertions

         During the course of the litigation, Reed served written discovery requests on Davis, seeking production of Davis' file relating to work performed on behalf of Fadal that related to the dissolution of PDA. Davis asserted the work-product exemption, [12] the attorney-client privilege, [13]and the consulting-expert privilege.[14]

         In its December 25, 2015, letter to the parties, the trial court made the preliminary finding that "the files of Mr. Davis could potentially contain documents subject to both Work Product Privilege and Consulting Expert Privilege." In addition, the trial court found,

The services of Mr. Davis were engaged through the offices of Mr. Rob Foster, the attorney for Dr. Fadal. As an accountant retained by an attorney, the contents of the file of Mr. Davis would be subject to the Attorney-Client Privilege. [Tex. R. Evid.] 503(a)(4)(B). Again, the Court is finding the prospect of an arbitration to resolve the disputed issues sufficient to invoke this privilege. Watson v. Kaminski, 51 S.W.3d 825, 827 (Tex. App.-Houston [1st Dis.] 2001).

         Next, the trial court explained that it had received Davis' file relating to the dissolution of PDA and that it would conduct an examination of the documents contained in the file to determine, among other things, whether the asserted privileges applied. Following an in camera inspection of the documents in conjunction with a review of Davis' privilege logs, the trial court sustained Davis' privilege assertions in regard to many of the documents contained in Davis' file on Fadal.

         A party that seeks to exclude any matter from discovery on the basis of an exemption or immunity from discovery must specifically plead the particular exemption or immunity and produce evidence supporting such a claim. Humphreys, 888 S.W.2d at 470. The burden is on the party asserting a privilege from discovery to produce evidence concerning its applicability. Id. "To meet its burden, the party seeking to assert a privilege must make a prima facie showing of the applicability of the privilege and produce evidence to support the privilege." In re USA Mgmt. Res., L.L.C., 387 S.W.3d 92, 96 (Tex. App.-Houston [14th Dist.] 2012, orig. proceeding). The prima facie standard requires the "minimum quantum of evidence necessary to support a rational inference that the allegation of fact is true." Tex. Tech Univ. Health Scis. Ctr. v. Apodaca, 876 S.W.2d 402, 407 (Tex. App.-El Paso 1994, writ denied). The prima facie standard may be satisfied by filing an affidavit in support of the assertion of privilege. Moreover, prima facie evidence may be shown by the use of testimony or by producing the documents to the court for in camera inspection. In re Exxon Mobil Corp., 97 S.W.3d 353, 357 (Tex. App.-Houston [14th Dist.] 2003, orig. proceeding).

         Reed maintains that Davis presented no witnesses during the hearing and relied on his own affidavit verifying the truth of his interrogatory answers to support his claims of privilege. As such, Reed contends that Davis failed to make a prima facie showing that any of the asserted privileges were applicable before the completion of the hearing, so Davis' claims of privilege were waived.

         In support of Davis' assertions of privilege, he presented to the trial court a sworn answer to an interrogatory from Reed:[15]

Davis Griffin, L.L.P.[, ] was hired by Dr. Fadal's attorney, Rob Foster, on or about March 15, 2014, to serve as a consulting expert in regard to the dissolution of Pediatric Dental Associates and any disputes or anticipated litigation arising therefrom. Thereafter, on or about May 24, 2014, Dr. Fadal retained Davis Griffin, L.L.P.[, ] to perform personal accounting services.

         Reed contends this statement is conclusory and that it is only some evidence of the consulting-expert privilege and no evidence of the attorney-client privilege and work-product exemption. Reed also maintains that the trial court's ruling shielded the materials that informed Davis' opinions regarding the May 27 meeting. Reed claims the court's ruling was harmful because it prevented him from discovering materials and information that may have been relevant and admissible and may have permitted him to raise genuine issues of material fact on the elements of actual malice and ill will.

Davis responds that (a) Reed did not object at trial and has not argued on appeal against using the answer to interrogatory number three as evidence in support of Davis' claims of privilege, [16] (b) the facts contained in his answer to Reed's interrogatory are not conclusory, but instead warrant a rational inference that the documents contained in Davis' Fadal file included information protected by the asserted privileges, (c) his answer to Reed's interrogatory meets the required burden of proof; and (d) even if this Court finds Davis failed to produce prima facie evidence, the trial court was allowed to, and did, conduct an in camera inspection of the documents before issuing its order and found many of the documents in Davis' file to be privileged.
(a) Hearing. Any party may at any reasonable time request a hearing on an objection or claim of privilege asserted under this rule. The party making the objection or asserting the privilege must present any evidence necessary to support the objection or privilege. The evidence may be testimony presented at the hearing or affidavits served at least seven days before the hearing or at such other reasonable time as the court permits. If the court determines that an in camera review of some or all of the requested discovery is necessary, that material or information must be segregated and produced to the court in a sealed wrapper within a reasonable time following the hearing.

Tex. R. Civ. P. 193.4(a) (emphasis added). In this case, the trial court made such a determination and set a hearing on the matter in November 2015.

         During the hearing, after Davis offered his answer to interrogatory number three as prima facie evidence in support of his privilege assertions and Reed objected to his offer, the trial court stated, "Mr. Perry, provide Mr. Davis' file for an in camera inspection. I'm going to look at it in light of the report -- the privilege log[17] that is provided. And, I might have a follow-up question or two for Counsel once I get into it." Notably, Rule 193.4(a) states that a party seeking to avoid production of a document based on a privilege may resort to live testimony or affidavits in order to support an assertion of privilege. It does not state, however, that any other type of evidence, such as a sworn answer to an interrogatory, is unacceptable evidence for consideration by the trial court.

         Moreover, following the hearing, the trial court sent a letter to the parties stating, "The Court has made a careful review of the Court's file, the Motion to Compel filed by Plaintiffs, together with the Responses filed on behalf of Defendants, and the arguments of counsel provided at the hearing on November 19, 2015, and sets forth its preliminary rulings." After stating its preliminary findings, the trial court closed its letter to the parties by stating,

The Court received Mr. Davis' file relating to the dissolution of Pediatric Dental Associates LLP. The Court will conduct an examination to determine: 1) whether there are documents responsive to the disputed request; 2) whether an Attorney-Client Privilege Applies; 3) whether an Attorney Work Product Privilege applies; 4) whether a Consulting Expert Privilege applies; and, 5) whether the document relates to the alleged voluntary disclosure on the part of Mr. Davis.

         Apparently, the trial court found that Davis' sworn answer to interrogatory number three, together with the court's file, Reed's motion to compel, and Davis' answers to Reed's interrogatories, warranted an in camera inspection of the documents before making a final ruling. The trial court was within its discretion to review the documents themselves. "Affidavits or live testimony may be sufficient proof; however, when the claim is based on attorney-client or attorney-work product, the documents themselves may constitute the only, and certainly the best, evidence substantiating the claim of privilege." Arkla, Inc. v. Harris, 846 S.W.2d 623, 631 (Tex. App.-Houston [14th Dist.] 1993, orig. proceeding) (citing Weisel Enters., Inc. v. Curry, 718 S.W.2d 56, 58 (Tex. 1986) (orig. proceeding) (per curiam)). The fact that the trial court eventually sustained Davis' assertions of privilege relating to a number of the documents contained in his file necessarily means it found that Davis presented prima facie evidence of the privileges he asserted as to those documents. Under these circumstances, we do not find that the trial court abused its discretion when it determined that prima facie evidence of the asserted privileges existed, regardless of when it made its determination. We also find no waiver by Davis of his privilege assertions.[18]

         This point of error is overruled.

         2. Traditional Summary Judgment Was Proper on Reed's Claims for Defamation and Business Disparagement, Because Conclusive Proof Established Davis' Defense of Qualified Privilege

         Based on Davis' statement during the May 27 meeting, Reed alleged claims of defamation, business disparagement, and tortious interference with prospective business relations. The trial court, faced with both a no-evidence and traditional motion for summary judgment, granted Davis' no-evidence motion for summary judgment as to the issue of malice relating to the claim of business disparagement and his no-evidence summary judgment motion as to the issue of damages as they relate to a claim of defamation. It also granted Davis' traditional motion for summary judgment with respect to all three of Reed's claims against Davis finding that either qualified privilege or judicial privilege protected Davis' statement.

         The grant of a trial court's summary judgment is subject to de novo review on appeal. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). In making the required review, we deem as true all evidence which is favorable to the nonmovant, we indulge every reasonable inference to be drawn from the evidence to favor the nonmovant, and we resolve any doubts in the nonmovant's favor. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).

         A no-evidence summary judgment is essentially a pretrial directed verdict. Therefore, we apply the same legal sufficiency standard in reviewing a no-evidence summary judgment as we apply in reviewing a directed verdict. Wal-Mart Stores, Inc. v. Rodriguez, 92 S.W.3d 502, 506 (Tex. 2002). We must determine whether the claimant produced any evidence of probative force to raise a fact issue on the material questions presented. See id.; Woodruff v. Wright, 51 S.W.3d 727, 734 (Tex. App.-Texarkana 2001, pet. denied). The plaintiff will defeat a defendant's no-evidence summary judgment motion if plaintiff presented more than a scintilla of probative evidence on each element of its claim. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003); Rhine v. Priority One Ins. Co., 411 S.W.3d 651, 657 (Tex. App.-Texarkana 2013, no pet.).

         To be entitled to traditional summary judgment, a movant must establish that there is no genuine issue of material fact so that the movant is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). Once the movant produces evidence entitling it to summary judgment, the burden shifts to the nonmovant to present evidence raising a genuine issue of material fact. Walker v. Harris, 924 S.W.2d 375, 377 (Tex. 1996). A defendant who conclusively negates a single essential element of a cause of action or conclusively establishes an affirmative defense is entitled to summary judgment on that claim. Frost Nat'l Bank v. Fernandez, 315 S.W.3d 494, 508-09 (Tex. 2010).

         Our analysis leads us to conclude that, as a matter of law, (a) only interested persons were at the meeting and (b) Davis acted without malice.

         (a) Only Interested Persons Were at the Meeting In its letter order, the trial court found as follows:

[T]hat the alleged defamatory statement was made by an accountant retained by an attorney, representing one of [t]wo (2) dentists seeking to address issues relating to the dental practice. The Court finds that the participants to the meeting all had interests sufficiently affected by the communication, and therefore the qualified [privilege] attached. As a result thereof, this Court is granting Defendants' Traditional Motion for Summary Judgment that a qualified privilege attached as to the alleged defamatory statement.

         Reed contends the trial court erred when it granted summary judgment to Davis based on qualified privilege. The common law "qualified privilege" has been described as follows: "Qualified privileges against defamation exist at common law when a communication is made in good faith and the author, the recipient or a third person, or one of their family members, has an interest that is sufficiently affected by the communication." Cain v. Hearst Corp., 878 S.W.2d 577, 582 (Tex. 1994). Qualified privilege is a conditional privilege and will be defeated if it is abused. Hurlburt v. Gulf Atl. Life Ins. Co., 749 S.W.2d 762, 768 (Tex. 1988). That is, the statement must be made in good faith and without malice.[19] Zarate v. Cortinas, 553 S.W.2d 652, 655 (Tex. Civ. App.- Corpus Christi 1997, no writ). When publication of an allegedly defamatory statement is made under circumstances creating a qualified privilege, the plaintiff has the burden to prove malice. Ramos v. Henry C. Beck Co., 711 S.W.2d 331, 335 (Tex. App.-Dallas 1986, no writ). When a defendant moves for summary judgment, however, the defendant assumes the burden of proving the absence of malice. Martin, 860 S.W.2d at 199. In making a determination as to whether a statement is subject to a qualified privilege, courts must consider the "occasion" of the communication by examining the totality of the circumstances including the communication itself, its communicator, its recipient, and the relief sought. Clark v. Jenkins, 248 S.W.3d 418 (Tex. App.-Amarillo 2008, pet. denied). The question of whether a qualified privilege exists is a question of law which is to be decided by the trial court. Mayfield v. Gleichart, 484 S.W.2d 619 (Tex. Civ. App.-Tyler 1972, no writ).

          Reed maintains that Davis failed to present competent summary judgment evidence to show that all of the meeting's attendees were sufficiently interested in the statement made by Davis at the May 27 meeting. Reed contends he presented sufficient evidence that Dr. Jennifer Rogers, Fadal's wife, and Robert "Bob" Rogers, CPA, were not sufficiently interested in the contents of Davis' statements during the May 27 meeting. In support of his assertion, Reed provided the affidavit of Leonard Acker, who is a licensed Certified Professional Accountant.[20] Acker's affidavits reads:

I have been made aware in reviewing the various affidavits of those present at the meeting that they all purport to have had an interest in the topics discussed at the meeting. Although none of them elaborate as to why they had an interest in the topics, it is questionable from an accounting perspective that either Mr. Bob Rogers or Dr. Jennifer Rogers had any interest in the statements attributed to Mr. Davis at that meeting. Bob Rogers was apparently employed as an independent CPA to generate the tax returns for PDA for 2013. His role apparently expanded beyond that point, but as of the time of that meeting, any statements regarding the accounting favoring one dentist over another in the amount of $1.2 million reflected back in time and would have no apparent impact from an accounting perspective on generating tax returns of PDA in 2013. As for Dr. Jennifer Rogers, she had no partnership interest in PDA, Fadal, PA, or Horne, PA, and she would have no interest in the statements attributed to Mr. Davis from an accounting perspective because any failure of accounting advice or services to PDA or Fadal, PA[, ] did not have an affect on her and only would have affected the one or both of the dentist's PAs or PDA

         In support of Davis' position, Davis provides affidavits from many of the participants of the May 27 meeting, including Robert "Bob" Roger's affidavit. Rogers averred, "All persons present at the meeting had an interest in the topics discussed during the meeting or represented those who had such interest."[21] Rogers also stated,

I was later engaged to prepare, among other things, Pediatric Dental Associates 2013 tax returns. On April 3, 2014, I met with James Davis and Rodney Overman in Mr. Davis' office to discuss capital accounts and guaranteed payments for Pediatric Dental Associates. During that meeting, Mr. Davis walked Mr. Overman and myself through the treatment of the capital accounts, specifically with respect to how guaranteed payments to Dr. Ronald Fadal were negatively impacted by disbursements made to Dr. Fadal's P.A. for purpose of compensating Dr. Jennifer Rogers. During that meeting, I ...

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