In a very instructive analysis of the apex-deposition rule, the Houston [1st] Court of Appeals has affirmed a trial court order compelling the former COO of NRG Energy, Inc. to give a deposition pursuant to a letter rogatory from Louisiana court.
In re Mauricio Gutierrez and NRG Energy, Inc. (No. 01-22-00188-CV; issued May 11, 2023) arose from a dispute between LaGen, a Lousiana power generator and transmission company formerly owned by NRG (NRG sold LaGen in 2019), and two Louisiana electric co-ops. The dispute involves whether LaGen improperly passed through to the co-ops certain costs of complying with a 2012 consent decree between LaGen and the EPA resolving an enforcement action stemming from excessive coal plant emissions. Under the power supply contracts at issue, one executed in 2002 and the other in 2012, the costs of compliance with changes in environmental law may not be allocated to the co-ops if those costs remediate pre-contract environmental conditions. The co-ops allege that the 2009 enforcement action arose from pre-contract conditions, making LaGen responsible for them. In 2012, the EPA promulgated the so-called “MATS rule,” which required a reduction in certain toxic air pollutants from coal-fired plants. Some of the compliance measures the consent decree required LaGen to take (such as converting one of the coal-fired plants to natural gas) were also mandated by the MATS rule. The co-ops allege that LaGen took advantage of the new rule to allocate some of the consent decree’s compliance costs to the co-ops, thus breaching the power supply contracts.
The co-ops filed suit in Louisiana for breach of contract and declaratory judgment. They subsequently took the depositions of 20 current and former employees regarding the allocation of costs under the consent decree and the MATS rule. They then obtained from the Louisiana court a letter rogatory requesting a Harris County district court to issue a subpoena compelling the former COO of NRG, Mauricio Gutierrez, to sit for a deposition in Houston. When they petitioned the Harris County to enforce the letter rogatory, NRG moved for a protective order under the Texas apex-deposition rule. NRG also moved to disqualify the co-ops’ counsel in the Texas case, who was once a member of a law firm that represented NRG in federal regulatory matters. The trial court denied the motion for protection and ordered Gutierrez to sit for the deposition to be used in the Louisiana litigation. NRG appealed.
In an opinion by Justice Landau, the court of appeals affirmed. The court first found that it had jurisdiction based on the finality of the trial court’s order. It then denied an accompanying petition for writ of mandamus because it could resolve NRG’s issues on appeal. Turning to the apex-deposition rule, the court noted that whether the rule even applies to a letter rogatory from a foreign jurisdiction was a matter of first impression. The court, however, side-stepped that question, concluding instead that the co-ops had met their burden of “show[ing] that the official has any unique or superior personal knowledge of the discoverable information.” See Crown Cent. Petroleum Corp. v. Garcia 904 S.W.2d 125, 128 (Tex. 1995). The trial court must further decide whether “(1) ‘there is a reasonable indication that the official’s deposition is calculated to lead to the discovery of admissible evidence,’ and (2) ‘the less intrusive methods of discovery are unsatisfactory, insufficient, or inadequate.’” Id.
The court conducted a thorough analysis of the deposition testimony in light of relevant case authority (which is well worth reading for its discussion of the salient facts of the cases and how courts have applied the rule). Pointing to Gutierrez’s affidavit, in which he represented that he merely received information from subordinates and passed it on to the CEO, NRG argued that “Gutierrez was a decision-maker in NRG’s ‘chain of command,’ which cannot satisfy the apex-deposition rule.” The court of appeals disagreed, concluding that the record demonstrated that Gutierrez played an active part, both in recommending the consent decree for approval and in approving requests for expenditures related to the decree and the MATS Rule compliance. Moreover, even after taking 20 depositions, the co-ops demonstrated that critical questions about how LaGen made the decision to allocate compliance costs remained unanswered and that Gutierrez “arguably has unique or superior personal knowledge of discoverable information.” They also successfully showed that less intrusive methods (20 depositions) had already been taken to obtain the information. The court of appeals thus concluded that the trial court did not abuse its discretion in denying the protective order and ordering Gutierrez’s deposition.
Shifting focus to the attorney disqualification issue, the court of appeals affirmed the trial court’s denial of NRG’s motion to disqualify. The applicable law is Rule 1.09 of the disciplinary rules, which governs conflicts of interest with former clients. Rule 1.09(a)(3) prohibits a lawyer who personally has represented a client in a matter from representing another person in a matter adverse to the former client if “the matters are the same or substantially related.” While “substantially related” is not defined in the rule, the commentary explains that “it primarily involves situations where a lawyer could have acquired confidential information concerning a prior client that could be used either to that prior client’s disadvantage or for the advantage of the lawyer’s current client or some other person (rule citation omitted). Matters are substantially related ‘when the similarity of the facts involved creates a genuine threat that confidences revealed to the client’s former counsel will be divulged to his present adversary’” (citation omitted).
SCOTX has held that a party seeking to disqualify opposing counsel must get over a very high bar, since the effects of disqualification “can result in immediate and palpable harm, disrupt trial court proceedings, and deprive a party of the right to have counsel of choice” (citation omitted). A moving party must “delineat[e] with specificity the subject matter, issues and causes of action common to prior and current representations,” and the trial court must “engage[] in a painstaking analysis of the facts and precise application of precedent” (citations omitted). Here the court of appeals found no evidence that the co-ops’ Texas counsel, who left the firm that had represented NRG and LaGen in 2001, was associated with that firm as co-counsel in the current matter. They also failed to show that the firm’s representation of NRG was focused on federal regulatory compliance and FERC matters, not negotiation of the power supply contracts or the allocation of costs thereunder. While a “facial similarity” may exist, in that the regulatory issues involved the coal plant, there was little to no connection to the Louisiana lawsuit. The trial court did not abuse its discretion in denying the motion to disqualify.
As noted above, this case, whether or not one agrees with the outcome, is illuminating with respect to the state of current law interpreting the apex-deposition rule, as well as Rule 1.09. Corporate lawyers and in-house counsel should take note.
