In re Prairiesmarts LLC

Trial court orders for production of material containing trade secrets were found to be an abuse of discretion because the party seeking production had not met their burden of proving that nonproduction constituted a real threat of an unjust result.

Opinion (Walker): Four former employees of TD Ameritrade, Inc. ("TD Ameritrade") joined PrairieSmarts, LLC ("PrarieSmarts") in late 2012. In January 2013, PrairieSmarts filed a patent application after which TD Ameritrade filed a Texas Rule of Civil Procedure 202 ("rule 202") petition seeking to depose PrairieSmarts and its employees. A rule 202 allows depositions before suit in order to investigate claims. PrairieSmarts filed answers denying all allegations and objected to the depositions and the production of documents. According to TD Ameritrade, PrairieSmarts’ product called PortfolioDefense looked similar to the risk model called Portfolio Margin, a model created at TD Ameritrade by the four employees of PrairieSmarts. PrairieSmarts filed a petition for writ of mandamus, contending that TD Ameritrade failed to meet its burden to show that the benefit of avoiding a costly lawsuit outweighs the burden on PrairieSmarts for disclosing their trade secrets. They also contended that TD Ameritrade failed to meet the Texas Rule of Evidence 507 ("rule 507") burden. Rule 507 states that a party to a lawsuit may refuse to disclose a trade secret as long as that nondisclosure will "not conceal fraud or work injustice." Additionally, the party seeking discover of the trade secrets must demonstrate how the lack of secrets would impair their case. The impairment must be real and not simply an imaginary or possible threat. The Court found that PrairieSmarts met their burden of showing that the information requested constituted trade secret information. The burden shifted to TD Ameritrade who argued that the information would be useful but did not reach the threshold of presenting a real threat of unjust result. Because PrairieSmarts met its burden, and TD Ameritrade failed to satisfy its burden under the Texas Rules of Evidence, this court held that that the trial court abused its discretion by ordering the depositions and document production. Accordingly, a writ of mandamus was conditionally GRANTED.