Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision Warrantech Corp. v. Computer Adapters Services, Fort Worth Court of Appeals, No. 2-03-002-CV, 04-08-2004. FACTS:When Warrantech Corp. customers need help with the computers and products, they are referred to the Warrantech Consumer Products Services division (WCPS), which, in turn, refers the service order to one of hundreds of repair companies Warrantech contracts with. Lou Braun and Victoria Clyde, a married couple, began working for Warrantech on a contract basis. Braun was hired to work full time for WCPS in late 1997, while Clyde continued as a consultant. Braun took part in making decisions regarding which companies with which WCPS would contract. He also became familiar with the company’s conflict-of-interest policy, which prohibited Warrantech employees from having an interest in company suppliers or competitors, but he also knew that the WCPS president and other employees owned companies with which Warrantech contracted. In her work, Clyde also became familiar with how WCPS processed and paid service providers’ requests for payments. On Aug. 13, 1998, after hiring another person to choose some of WCPS’ contractors, Warrantech laid off Braun and terminated Clyde’s consulting contract. Braun signed a non-compete agreement, to last six months. Some time within the next week. Clyde formed Computer Adapters Services; she was owner and president. There was some question as to whether Clyde decided to form the business after the events of Aug. 13, or whether she had been making plans since June. CAS became one of the companies WCPS contracted with, though CAS attempted to conceal its identity. CAS employees used aliases when communicating with WCPS and CAS’ responsible party was listed as Braun’s son-in-law, though the son-in-law had no actual involvement in the venture. Though WCPS paid $360,000 worth of invoices to CAS, it did not pay for an additional $213,000 billed by CAS. CAS thus sued Warrantech and WCPS for breach of contract, quantum meruit and fraud. CAS claimed that it was common practice for WCPS to issue repair orders for repairs not under warranty and then refusing to pay them. The Warrantech parties countersued Braun and Clyde, alleging breach of contract, fraud, conspiracy and breach of fiduciary duty. At trial, the court refused to allow into evidence an exhibit called “DX 982.” The exhibit was a letter from Clyde to her attorney, and it contained acknowledgements that CAS had used fake names. The letter was produced by CAS during discovery some three years earlier, but it was only identified by Warrantech in its exhibit list as “Invoice with attachments.” It was not fully identified until the day before trial. Warrantech claimed the letter would contradict Clyde’s trial testimony that the company had not used aliases. CAS’s attorney objected to the exhibit based on the attorney-client privilege. The jury returned a verdict for CAS on its breach of contract and quantum meruit claims but not on its fraud claims. All of Warrantech’s claims went against them. HOLDING:Affirmed. The court agrees that Texas Rule of Civil Procedure 193.3(d) deals with waiver of privilege and that a party who mistakenly produces privileged material waives the privilege if he doesn’t object within 10 days. However, the 10-day period begins to run from the party’s first awareness of the mistaken production, not from the date of production itself. The court observes that DX 982 was stamped with the same number as an unrelated document, and that the description of “Invoice with attachments” was the same description used on hundreds of other exhibits. It was not more fully identified as “Letter from Clyde to Crumb” until the day before trial, and CAS and their attorney asserted the privilege three days later, well within the 10-day limit of Rule 193.3(d). Consequently, they did not waive attorney-client privilege. The court also rejects Warrantech’s argument that the privilege was waived over CAS’ offensive use of the privilege. Privilege will be waived under this theory if, among other things, the disclosure of the confidential communication is the only means to get the evidence. The court finds this element lacking, as there was other evidence that called Clyde’s credibility and showed that she and CAS had attempted to withhold CAS’s true identify from Warrantech. Finally, the court rules that the letter was not admissible under the crime/fraud exception to the attorney-client privilege. The exception applies only if “1. the party asserting it makes out a prima facie case of contemplated fraud and 2. there is a relationship between the document for which the privilege is challenged and the prima facie proof offered.” The court finds no support for the argument that the letter was evidence of Clyde’s plan to commit fraud upon the court. The letter was written more than two months before the lawsuit was filed, and several more years before the case went to trial. Further, although the letter shows that Clyde and CAS were trying to conceal CAS’ true identity, it does not show Clyde was engaged in ongoing fraud. Nor did the letter show that CAS was using the fake names to swindle Warrantech out of payments for services never rendered. And, again, there was ample evidence calling Clyde’s credibility into question. The court finds that the trial court did not abuse its discretion by denying Warrantech’s motion for new trial, which was based on the company’s assertion that CAS had withheld a critical piece of evidence: a check that Warrantech claims would have shown that CAS was paying off a WCPS executive to get funnel work to CAS. The court points out that Warrantech knew of the missing check from Clyde’s deposition three weeks before trial, not during Clyde’s testimony trial as Warrantech claims. “While we do not condone the failure to produce the check, the trial court could have reasonably concluded the check was not a ‘critical piece of evidence’ or that the Warrantech Parties’ failure to offer documentary evidence of kickbacks at trial was not, as they contend, due to CAS’s discovery abuse.” The court overrules Warrantech’s arguments related to breach of fiduciary duty due to inadequate briefing, and the court upholds the award of post-judgment interest. OPINION:Cayce, C.J.; Cayce, C.J., Livingston and Gardner, JJ.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 3 articles* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.