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Dresser-Rand Co. v. Schutte & Koerting, Acquisition Co.

United States District Court, S.D. Texas, Houston Division

May 2, 2017

Dresser-Rand Company, Plaintiff,
v.
Schutte & Koerting, Acquisition Company, et al., Defendants.

          MEMORANDUM OPINION & ORDER

          Gray H. Miller United States District Judge.

         Pending before the court is plaintiff Dresser-Rand Company's (“Dresser-Rand”) objection to the Magistrate Judge's order (Dkt. 110) granting the defendants' motion to permit the defendants to review Dresser-Rand's expert reports (Dkt. 107). Dkt. 113. Having considered the order, hearing transcript, objection, motion, responses, and the applicable law, the court finds that Dresser-Rand's objection should be OVERRULED.

         I. Background

         Dresser-Rand is suing the corporate defendants Schutte & Koerting Acquisition Company, Schutte & Koerting, LLC, Schutte & Koerting, Inc. (collectively “S&K”), and defendants Kanaksinh Ashar, Anthony Jardine, and Robert Maxwell (collectively “individual defendants”) for trade secret misappropriation and related causes of action. Dkt. 53. In 2012, the individual defendants left Dresser-Rand to work for S&K. Dkt. 113 at 4. Dresser-Rand accuses the defendants of misappropriating its trade secrets associated with safety valves for steam turbines. Dkt. 113 at 4. On April 18, 2012, the court entered a protective order governing discovery (“Protective Order”). Dkt. 30. One provision of the Protective Order limits the defendants' access to any Dresser-Rand information marked as “highly confidential” to only the parties' attorneys, experts, and supporting personnel. Id. at 6.

         On March 27, 2017, Dresser-Rand produced four expert reports. Dkt. 107 at 1-2; Dkt. 113 at 11. Three of the reports describe the trade secrets at issue in the case, and the fourth report describes basis for the calculation of the damage claim using Dresser-Rand's sensitive financial data. Id. Dresser-Rand marked these four reports “highly confidential.” Dkt. 107 at 2. On April 3, 2017, the defendants filed a motion to allow the individual defendants and the S&K corporate representative to review the four reports. Id.

         This case was referred to Magistrate Judge Nancy Johnson for full pre-trial management. Dkt. 96. On April 10, 2017, the Magistrate Judge held a discovery hearing on the motion. Dkt. 115. The Magistrate Judge issued an order granting the defendants' motion. Dkt. 110. However, the order requires that any review be performed with attorneys present and it prohibits the release of the expert reports into the personal possession of the individual defendants or S&K's corporate representative. Id. Dresser-Rand notified the Magistrate Judge of its intent to object to her order, and the Magistrate Judge stayed her order pending the district court's review of the objection. Dkt. 110.

         Dresser-Rand timely objected to the order. Dkt. 113. The individual defendants and S&K responded. Dkts. 117; 118.

         II. Legal Standard

         A party may file objections with the district court after receiving an unfavorable discovery ruling from a Magistrate Judge. Fed.R.Civ.P. 72(a). However, because a pre-trial discovery matter is non-dispositive, the court may sustain the objection only to the extent that the Magistrate Judge's ruling is “clearly erroneous or is contrary to law.” Id.; 28 U.S.C. § 636(b)(1)(A).

         III. Analysis

         Dresser-Rand makes four arguments for reversing the Magistrate Judge's decision: (1) disclosure of the expert reports is a violation of the Protective Order, (2) disclosure of the expert reports is not fair because it “rewards” a direct competitor with additional confidential information from the plaintiffs, (3) the Magistrate Judge's order will increase the number of discovery disputes, and (4) Dresser-Rand has proffered a compromise on the expert reports. Dkt. 113. The court will address these arguments in turn.

         First, Dresser-Rand argues that disclosure of these expert reports violates the Protective Order. Id. at 9-14. Specifically, Dresser-Rand argues that release of these reports violates the provision which allows only the attorneys, defense experts, and their staff to view any document marked “highly confidential.” Id. at 10. S&K counters that the documents are improperly categorized as “highly confidential” because that category should not include information already in the knowledge of the defendants. Dkt. 118 at 4 (citing Dkt. 30 at § 2.C). Because the individual defendants developed the design of the valve, and three of the expert reports contain that technical information, S&K argues that the information in the reports is already in the defendants' knowledge. Id. The court finds that neither argument is dispositive. The Protective Order allows a party to petition the court for relief from any term or condition of the Protective Order for good cause. Dkt. 30 at 9. Because the defendants' motion is allowed under the terms of the Protective Order, the court concludes that the Magistrate Judge did not commit any clear error of law by ruling on the motion.

         Second, at the heart of its objection to the Magistrate Judge's order, Dresser-Rand argues that it is unfair that it has to turn over its trade secret and the financial basis for its damages demand to its competitor. Dkt. 113 at 14-16. In making a discovery determination, the court balances the need for disclosure through discovery against protecting parties from an undue burden or injury that might occur with disclosure. Fed.R.Civ.P. 26(c); see also Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36, 104 S.Ct. 2199, 2209 (1984) (“To be sure, Rule 26(c) confers broad discretion on the trial court to decide when a protective order is appropriate and what degree of protection is required.”).

         Generally, discovery is a procedural matter governed by the Federal Rules of Civil Procedure, not state discovery practices. 8 Wright and Miller, Federal Practice and Procedure § 2005 (Supp. 2000); see also Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817 (1938). However, Dresser-Rand cites to a Texas Supreme Court case which held that a trial court abused its discretion by failing to perform a balancing test and instead summarily allowed a defendant to be exposed to a plaintiff's trade secrets merely because he was being sued. Dkt. 113 (citing In re M-I L.L.C., 505 S.W.3d 569, 576 (Tex. 2016)). The Texas Supreme Court held that the due process right to have a defendant present at trial is ...


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