                                  NO. 07-10-00388-CV

                             IN THE COURT OF APPEALS

                      FOR THE SEVENTH DISTRICT OF TEXAS

                                     AT AMARILLO

                                        PANEL C

                                  FEBRUARY 3, 2011


               IN RE YORKSHIRE INSURANCE CO., LTD. AND OCEAN
                    MARINE INSURANCE CO., LTD., RELATORS



Before QUINN, C.J., and HANCOCK and PIRTLE, JJ.


                                        OPINION

      Relators, Yorkshire Insurance Company, Ltd., and Ocean Marine Insurance

Company, Ltd. (collectively “Insurers”), filed a petition for writ of mandamus seeking the

overruling of respondent’s, the 84th District Court of Hutchinson County, Texas, August

17, 2010 discovery order that certain documents were privileged and that quashed a

request to depose Cynthia Gillman Fisher. Real Parties in Interest, Roy Seger, the

estate of Shirley Faye Hoskins, Diatom Drilling Company, and Cynthia Gillman Fisher

(collectively, “the Segers”), filed a response urging this Court to deny Insurers’ request

for mandamus relief. We will deny Insurers’ petition for writ of mandamus.
                                       Background1


       After this Court reversed and remanded certain issues in this case on direct

appeal, see Yorkshire Ins. Co., 279 S.W.3d at 775, Insurers filed a Notice of Deposition

seeking to depose Cynthia Gillman Fisher.2 Gillman was the general partner of Diatom,

who was the insured under a comprehensive general liability policy that assigned its

right to bring a Stowers3 action against Insurers to Roy Seger and Shirley Faye

Hoskins. In response, the Segers moved to quash the deposition of Gillman and for

protective order regarding certain documents that had been held privileged by the trial

court by order dated December 14, 2004, but that had subsequently become part of the

appellate record.4


       In the direct appeal resulting in remand, Insurers challenged the trial court’s

ruling that the documents now sought to be protected by the Segers were privileged as

work product and attorney-client communications. Our review of the record revealed

that, “[s]ome of the evidence sought by Insurers was included in the appellate record in

       1
          We will limit our discussion of the facts and procedural history in this opinion to
those that are directly relevant to our disposition of this matter. For a more complete
recitation of the facts and procedural history of this litigation, see our June 20, 2007
opinion. See Yorkshire Ins. Co. v. Seger, 279 S.W.3d 755 (Tex.App.—Amarillo 2007,
no pet.).
       2
        In an effort to be consistent with our prior opinion, further reference to Cynthia
Gillman Fisher will be by reference to Gillman.
       3
      See G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544, 548 (Tex.
Comm’n App. 1929, holding approved).
       4
          Specifically, the documents at issue in this proceeding are identified as
“Privileged Documents 1-44 Delivered from Jody Sheets to Mark N. Buzzard in Open
Court on January 8, 2003.” Further reference to “the documents” will be references to
the documents so identified and appearing unsealed in the appellate record.
                                             2
this cause.” Id. at 773. Further, we noted that, “[a]fter reviewing all of the documents

provided to the trial court for in camera inspection [which remain under seal in the

appellate record], the documents Insurers seek by this issue are duplicates of the

documents that were included in the appellate record [unsealed].” Id. at 774. Because

nothing in the appellate record reflected that Diatom or Gillman had asserted any claim

that these documents were privileged after they were publicly disclosed, we concluded

that, for the present litigation, “Diatom’s prior assertion of privilege as to these

documents has been waived.” Id. at 773. However, we expressly noted that, because

Diatom was no longer a party to the case, our determination that Diatom had waived its

prior assertion of privilege in that appeal was not a determination that Diatom had actual

knowledge of the disclosure or that it had waived its right to subsequently assert the

privilege. Id. at 773 n.28.


       The trial court held a hearing on the motion to quash the deposition of Gillman

and for protective order relating to the documents.       During this hearing, Diatom5

asserted that the documents were privileged and that it had not voluntarily produced the

documents to anyone other than when they were submitted to the trial court for in

camera inspection. Diatom suggested that the documents must have been erroneously

included unsealed in the appellate record by the district clerk. Further, the Segers

       5
         During this hearing and in the briefs submitted in this mandamus proceeding,
the Segers appear to contend that Diatom and Gillman have separate rights to claim
privilege in regard to these documents. However, it is clear that Gillman’s participation
in this case has always been as a representative of Diatom and not in her individual
capacity. Further, the trial court’s December 14, 2004 order finding these documents to
be privileged was based on Diatom’s assertion of privilege, rather than Gillman’s. As
such, while we recognize that Gillman is the individual that possesses the right to assert
the privileges, in this case and as to these documents, she holds that right as the
representative of Diatom.
                                            3
contended that Insurers had already deposed Fisher for the allotted ten hours and that

the entirety of this deposition was conducted before the trial court ruled on Diatom’s

claim that these documents were privileged. Insurers responded by contending that this

Court had already determined that Diatom’s claim of privilege as to these documents

had been waived and that, to the extent that we did not so hold, it was because the

record did not establish whether Diatom was actually aware of the public disclosure of

these documents. Insurers then presented evidence that Diatom was actually aware of

the public disclosure of these documents by October 31, 2005, and that it took no action

to assert its claim of privilege relating to these documents until it filed its motion to

quash and for protective order on February 8, 2010. Insurers also contended that they

had a substantial need for additional time to depose Gillman because they did not know

the contents of these documents until after they had completed their deposition of

Gillman and these documents go to the heart of Insurers’ Gandy6 defense to the

pending Stowers action. At the close of this hearing, the trial court took the issue under

advisement. Subsequently, on August 17, 2010, the trial court issued its order quashing

the deposition of Gillman and further finding that the documents are privileged and may

not be used in this litigation. The trial court’s order additionally orders that all parties

and counsel return any copies of these documents to Gillman’s attorney within 30 days

of the order and that the district clerk place any unsealed copies of these documents in

the clerk’s record under seal.


       By their petition for writ of mandamus, Insurers contend that they are entitled to

mandamus relief because the trial court clearly abused its discretion by (1) ruling that

       6
           See State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696, 714 (Tex. 1999).
                                             4
documents filed in the public records of an appellate court for many years are subject to

a claim of privilege, (2) failing to apply the snap back procedures of Texas Rule of Civil

Procedure 193.3(d) to Diatom’s assertion of privilege, (3) prohibiting the use of the

documents in the underlying litigation, requiring all parties and lawyers to return all

copies of the documents, and ordering public records sealed without compliance with

applicable rules, and (4) failing to apply the crime-fraud exception to Diatom’s claim of

privilege. Insurers also contend that the trial court’s abuse of discretion leaves them

with no adequate remedy by appeal because the challenged order vitiates Insurers’

ability to present their Gandy defense. We disagree with Insurers’ contention that the

trial court’s order denies them an adequate remedy by appeal.


                                  Standard of Review


      Mandamus is an extraordinary remedy that will issue only if (1) the trial court

clearly abused its discretion and (2) the party requesting mandamus relief has no

adequate remedy by appeal. See In re Prudential Ins. Co. of Am., 148 S.W.3d 124,

135-36 (Tex. 2004); Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992). A trial court

has no discretion in determining what the law is or in applying the law to the facts.

Walker, 827 S.W.2d at 840. When mandamus is sought to overcome a trial court’s

conclusion that evidence is privileged, this Court must determine whether the party

asserting the privilege has discharged its burden of proof. See Barnes v. Whittington,

751 S.W.2d 493, 494 (Tex. 1988). An appellate remedy is not inadequate because it

may involve more expense or delay than obtaining an extraordinary writ, rather it is

inadequate only when parties stand to lose their substantial rights. Walker, 827 S.W.2d

                                            5
at 842. Whether ordinary appeal can provide an adequate remedy to a trial court’s

abuse of discretion depends on a careful analysis of the costs and benefits of

interlocutory review. In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, 464 (Tex. 2008).

This balancing analysis recognizes that the adequacy of an appeal depends on the

facts involved in each case. Id. at 469.


                                The Adequacy of Appeal


       For purposes of this analysis, we will assume without deciding that Insurers met

their burden to establish that the trial court clearly abused its discretion in issuing its

August 17, 2010 discovery order. However, to establish their entitlement to mandamus

relief, Insurers must also establish that ordinary appeal would not provide them

adequate relief. See In re Prudential, 148 S.W.3d at 135-36; Walker, 827 S.W.2d at

839. In attempting to meet this burden, Insurers contend that the trial court’s order

denies discovery going to the heart of Insurers’ Gandy defense, and denies the

reviewing court evidence that would be necessary for it to determine whether the trial

court’s erroneous order was harmful.7


       As this Court has previously recognized, the general rule in a Stowers action is

that damages are fixed as a matter of law in the amount of the excess of the judgment


       7
          Both of Insurers’ contentions regarding how the trial court’s discovery ruling
denies them an adequate remedy by appeal are categories of discovery rulings that
were identified by the Texas Supreme Court as rulings that would render appeal
inadequate. See Walker, 827 S.W.2d at 843. However, the ad hoc categorical
approach employed in Walker has subsequently been rejected by the Texas Supreme
Court in favor of the balancing of costs and benefits of mandamus review, as presented
in In re Prudential, 148 S.W.3d at 136. See In re McAllen Med. Ctr., 275 S.W.3d at 468-
69.
                                            6
rendered in the underlying suit in favor of the plaintiff over the applicable policy limits.

See Yorkshire Ins. Co., 279 S.W.3d at 772. However, the Texas Supreme Court has

created an exception to this general rule when the insured assigns his Stowers claim to

the plaintiff in the underlying suit. See Gandy, 925 S.W.2d at 714. When such an

assignment occurs, the underlying judgment is not only not conclusive, but is

inadmissible as evidence of damages unless rendered as the result of a “fully

adversarial trial.” Id. In making the determination whether an underlying judgment was

the result of a fully adversarial trial, we must review the extent to which the parties to the

underlying proceeding participated. See Yorkshire Ins. Co., 279 S.W.3d at 772 n.25

(citing Gandy, 925 S.W.2d at 713). When the judgment is an agreed judgment, default

judgment, or when the underlying defendant’s participation is so minimal as to evidence

that the hearing was not adversarial, the judgment resulting from that hearing may not

be admitted as evidence of damages in the Stowers action. Id. (citing Gandy, 925

S.W.2d at 713, 714).


       In analyzing Insurers’ Gandy defense in the initial appeal of this case, we noted

that the Segers’ only evidence of damages in the Stowers action was the judgment from

the underlying suit, and that the trial court could only direct a verdict on damages in

favor of the Segers if the Insurers failed to raise a genuine issue of material fact

regarding the reliability of the judgment as evidence of Diatom’s damages. See id. at

773. In other words, we had to determine whether Insurers raised a genuine issue of

material fact regarding whether the judgment from the underlying suit was the result of a

fully adversarial trial. Our conclusion that the evidence raised such a genuine issue of

material fact did not rely on anything contained within the documents or from the
                                              7
deposition testimony of Gillman.8 Thus, our review of Insurers’ Gandy defense was

limited to a review of Diatom’s participation in the underlying proceeding.


       In the instant petition for writ of mandamus, Insurers contend that the trial court’s

order denying them the ability to use the documents and to further depose Gillman

“precludes Insurers from forging their Gandy defense” because this discovery “is

essential to Insurers’ defense,” and “going through another trial without this vital

evidence would result in an utter waste of judicial and party resources.” We cannot

agree with these assertions. During the first trial of this Stowers action, Insurers raised

their Gandy defense, which was rejected by the trial court. However, on appeal, this

Court found that the evidence raised a genuine issue of material fact regarding the

defense without considering the documents. See id. If, as Insurers now contend, the

documents and the additional deposition of Gillman are essential, vital, and necessary

to avoid an utter waste of judicial resources, then their assertion of the Gandy defense

in the initial Stowers action would have been the assertion of a defense that Insurers

were aware could not be supported by the available evidence.9 However, this was not

the case because, as we found, see id., it is a review of Diatom’s participation in the

underlying proceeding that determines whether the judgment in that proceeding resulted


       8
          Specifically we stated, “Insurers raised the question of whether the judgment in
the underlying action was the result of a fully adversarial trial. As evidence that it was
not, Insurers correctly indicated that Diatom was not represented by counsel at the trial
in the underlying suit, made no opening or closing statements, offered no evidence, and
conducted no cross-examination of the Segers' witnesses. Further, Insurers cite the
trial court's own characterization of this proceeding as a nihil dicit prove up.” Id.
       9
         This is so because the documents did not become part of the public record until
after judgment in the initial Stowers action had been issued and the appellate record
was prepared.
                                             8
from a fully adversarial trial.   See Gandy, 925 S.W.2d at 713.         While we certainly

understand Insurers’ desire to have the documents and Gillman’s additional deposition

testimony available to bolster their Gandy defense, we cannot conclude that this

evidence is of such a vital nature as to justify this Court’s interlocutory interference with

the trial court’s discovery rulings. See In re McAllen Med. Ctr., Inc., 275 S.W.3d at 464.


                                        Conclusion


       Because this Court concludes that Insurers have failed to meet their burden to

show how the trial court’s August 17, 2010 discovery order denies them an adequate

remedy by appeal, Insurers’ petition for mandamus relief is denied.10




                                                         Mackey K. Hancock
                                                              Justice




       10
           Because the trial on the remanded issues was scheduled to begin on
November 1, 2010, Insurers filed a motion for stay of trial pending this Court’s resolution
of the current mandamus proceeding. We granted that motion. As this opinion resolves
the current mandamus action, we now vacate our prior stay order.
                                             9
