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The Railroad Commission of Texas v. Polk Operating, LLC

Court of Appeals of Texas, Third District, Austin

February 22, 2018

The Railroad Commission of Texas, Appellant
v.
Polk Operating, LLC, Appellee

         FROM THE DISTRICT COURT OF TRAVIS COUNTY, 419TH JUDICIAL DISTRICT NO. D-1-GN-16-005837, HONORABLE GISELA D. TRIANA, JUDGE PRESIDING

          Before Chief Justice Rose, Justices Goodwin and Field.

          MEMORANDUM OPINION

          Jeff Rose, Chief Justice.

         The Railroad Commission of Texas appeals from the trial court's denial of its plea to the jurisdiction in an original proceeding filed by Polk Operating, LLC, to challenge the Commission's discovery orders in an administrative hearing. Polk seeks to have the discovery orders set aside on trade-secret grounds. The Commission asserted, in a plea to the jurisdiction denied by the district court, that Polk failed to exhaust its administrative remedies on the trade-secret issue. For the reasons explained below, we will affirm the district court's denial of the Commission's plea to the jurisdiction.

         Background

         Polk is licensed by the Commission to recycle nonhazardous oil and gas waste at a facility in Karnes County, Texas. In late 2016, the Commission brought an enforcement proceeding against Polk after Commission staff determined that Polk's storage pits were inadequately lined and over capacity.

         During the course of the Commission proceedings, intervenor Evergreen Underground Water Conservation District sought discovery regarding the identity of Polk's customers, Polk's compensation arrangements, and Polk's activities on property adjacent to its recycling facility.[1] Polk objected to the discovery requests on the grounds that, among other reasons, the requests sought irrelevant information and information that Polk considers trade secrets. Ultimately, after a hearing on the matter, an administrative law judge issued an order compelling Polk to fully respond to the discovery requests; a protective order regarding the requested information; and an order allowing Evergreen to enter and inspect Polk's property.

         Complying with Commission rules regarding appeals of interim rulings, Polk timely filed a written appeal to the Commission challenging the ALJ's discovery orders. See 16 Tex. Admin. Code § 1.30(c) (Railroad Comm'n of Tex., Interim Rulings and Appeals of Interim Rulings) (specifying that "any party aggrieved by an interim ruling may appeal that ruling to the commission by filing a written appeal") (current version at 16 Tex. Admin. Code § 1.38). Polk asked the Commission to reverse the ALJ's interim orders on the grounds that the discovery requests "are clearly unreasonable, " "have no realistic bearing on any of the matters at issue in these proceedings, " are "overbroad, " and "would be very useful in the hands of [Polk]'s competitor." In its appeal to the Commission, Polk also incorporated by reference, but added no additional argument or explanation, its written responses and objections to Evergreen's discovery requests, which included Polk's assertion that the requested information constituted trade secrets. Finally, Polk asked the Commission to fashion a more comprehensive protective order regarding the requested information, complaining that the ALJ's protective order lacked enforceability, accountability, and responsibility.

         The Commission, which did not specifically address Polk's request that the ALJ's orders be reversed, issued an order directing the ALJ to amend and supplement the protective order as Polk had requested. The Commission also directed the ALJ to modify the inspection order to specifically describe the persons who were authorized to enter onto and inspect Polk's property. The ALJ complied and issued the amended and supplemented protective order and amended inspection order as directed by the Commission.

         Seeking to have the Commission's amended and supplemented discovery orders set aside, Polk filed the underlying petitions for writ of mandamus and writ of injunction in the district court. Polk argued that the Commission had abused its discretion in issuing the discovery orders because Evergreen had failed to demonstrate that production of Polk's trade secrets was "necessary for a fair adjudication of the claim." In re Continental Gen. Tire, Inc., 979 S.W.2d 609, 612 (Tex. 1998) (holding trial court abused discretion in ordering production of trade-secret information where party requesting information failed to carry its burden of showing that requested information was necessary to fair adjudication of claim).

         The Commission challenged Polk's original proceeding in a plea to the jurisdiction, arguing that Polk failed to exhaust its administrative remedies at the agency level. See, e.g., Clint Indep. Sch. Dist. v. Marquez, 487 S.W.3d 538, 544 (Tex. 2016) (noting that where Legislature has granted agency sole authority to make initial determination in disputes arising within agency's regulatory arena, party must exhaust its administrative remedies before seeking recourse through judicial review). Specifically, the Commission asserted that because Polk's appeal to the Commission did not explicitly reference the ALJ's failure to make a necessity finding regarding Polk's trade-secret objections, Polk had failed to exhaust its administrative remedies on the necessity issue. The Commission also asserted in its plea that Polk lacked standing to challenge the Commission's discovery orders because Polk's appeal to the Commission was successful-i.e., the Commission granted Polk the relief it had requested by ordering the ALJ to amend the challenged interim orders. The district court denied the Commission's plea, and this interlocutory appeal ensued. See Tex. Civ. Prac. & Rem. Code § 51.014(a)(8) (allowing interlocutory appeal of denial of government's plea to jurisdiction).

         Discussion

         The Commission's issues on appeal mirror the grounds asserted in its plea to the jurisdiction: the district court lacks jurisdiction over Polk's original proceeding, and thus erred in denying the Commission's plea to the jurisdiction, because (1) Polk failed to exhaust its administrative remedies on the trade-secret issue by neglecting to explicitly raise that issue in its appeal to the Commission; and (2) Polk lacks standing to challenge the discovery orders because it was successful in its appeal to the Commission.

         Exhaustion ...


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