in Re Michael Rockafellow & MTBC, Ltd., Relator

In The
Court of Appeals
Seventh District of Texas at Amarillo
________________________

No. 07-12-0372-CV
________________________

IN RE MICHAEL ROCKAFELLOW; MTBC, LTD.;
AND TBC WAREHOUSE, INC., RELATORS

________________________

April 30, 2013

ON PETITION FOR WRIT OF MANDAMUS
Before QUINN, C.J., and HANCOCK and PIRTLE, JJ.

Relators, Michael Rockafellow and his company, MTBC, Inc., have filed their

petition for writ of mandamus, asking this Court to direct respondent, the Honorable Les

Hatch of the 237th District Court of Lubbock County, to vacate the order of August 7,

2012, ordering Rockafellow and MTBC to disclose their suppliers of certain hair care

products to real party in interest, SalonQuest, L.L.C. We will conditionally issue a writ of

mandamus so directing.
 Factual and Procedural History

In the underlying case, SalonQuest has filed suit against Rockafellow, MTBC,

Jane Does 1–5, and ABC Companies 1–5, alleging causes of action in tortious

interference with contract and with business relations, civil conspiracy, and breach of

contract. The substance of the discovery dispute stemming from this litigation,

however, is not unfamiliar to this Court; that dispute had its beginning well before suit

was filed. In 2010, SalonQuest learned that Rockafellow and MTBC had sold

SalonQuest products to grocery store outlets in south and central Texas and, before

filing suit against anyone, attempted to discover the identities of the distributors or

authorized retailers from which MTBC had attained SalonQuest hair care products and

which, by selling product to MTBC, had diverted SalonQuest products outside the

distribution channel that SalonQuest has designed and to which SalonQuest and its

customers had agreed by contract. To that end, SalonQuest filed its petition in the trial

court seeking pre-suit deposition of Rockafellow. See TEX. R. CIV. P. 202. Ultimately,

the trial court granted the relief SalonQuest requested and authorized (1) pre-suit

deposition of Rockafellow and (2) disclosure of documents related to MTBC’s

acquisition of SalonQuest’s hair care products, both tools in furtherance of SalonQuest’s

efforts to learn the identities of the companies or individuals from whom MTBC obtained

SalonQuest products for later resale to unauthorized retail outlets.

Rockafellow sought extraordinary relief from this Court by way of petition for writ

of mandamus, asking that this Court direct respondent to vacate the January 2011 order

authorizing pre-suit deposition of Rockafellow on the basis that the identities of

Rockafellow’s suppliers were protected by the trade secret privilege and that

2
SalonQuest had not made the requisite showing that the requested information was

necessary for a fair adjudication of its claims such that it would be entitled to compel the

disclosure of trade secret information. See In re Rockafellow, No. 07-11-00066-CV,

2011 Tex. App. LEXIS 5495 (Tex.App.—Amarillo July 29, 2011, orig. proceeding)

(mem. op.). We agreed and conditionally granted mandamus relief directing the

respondent to vacate the order authorizing pre-suit deposition of Rockafellow. See id.

at *12–14.

Months later, SalonQuest filed suit against Rockafellow, MTBC, and the Doe and

ABC defendants. It is this pending suit which gives rise to the instant petition for writ of

mandamus. After filing suit, SalonQuest once again sought to discover the identities of

individuals or entities from whom Rockafellow and MTBC obtained its supply of

SalonQuest products. Rockafellow and MTBC resisted SalonQuest’s discovery

requests, and SalonQuest filed a motion to compel. The trial court held a hearing on

the motion and, after considering the evidence presented and the parties’ trial briefing

on the issue, granted SalonQuest’s motion to compel by order signed August 12, 2012,

in which it ordered Rockafellow to disclose the requested information.

We are once again asked to determine whether Rockafellow has shown that the

requested information is privileged as trade secret and, if so, whether SalonQuest has

made a sufficient showing that it is nonetheless entitled to the information. See TEX. R.

EVID. 507; In re Union Pac. R.R., 294 S.W.3d 589, 591 (Tex. 2009) (orig. proceeding)

(per curiam). Based on our analysis of the evidence and application of the principles

relating to trade secret privilege, we will again conditionally grant mandamus relief.

3
 Background: The Diversion and Anti-Diversion Industries

It is helpful to outline our elementary understanding of the diversion industry and

its offspring, the anti-diversion industry. Though SalonQuest has suggested that this

case involves Rockafellow’s immoral practice of interrupting the authorized or preferred

distribution channel by tempting distributors or salons to provide him the products, it

appears that the diversion industry is a highly developed, widely recognized, and multi-

million-, perhaps multi-billion-, dollar industry. In other words, this is big business. And

Rockafellow is not the only one involved in this business; he testified that there are ten

or eleven major competitors in the diversion industry nationwide.

Diversion, as a business, seems to have come about in the climate of certain

manufacturers’ development of salon-only retail distribution policies in which the

products would be sold to the consumer only through an authorized salon. When the

product began showing up for sale on shelves of drug stores and grocery stores,

however, it became clear that the product had been diverted outside the intended

channel of distribution somewhere along the way. As this diversion industry grew, so

did the anti-diversion industry in response, and a good amount of time and resources

were devoted to trying to eliminate, reduce, or identify diversion. Some manufacturers

and distributors have been more successful at this venture than others.

In a rather simplified model, as we understand it, diversion in the hair care

products industry involves three primary players: manufacturer, distributor, and

authorized retailer, typically a salon. From the authorized retailer, the product goes to

the consumer. A diverter, like Rockafellow, interrupts this authorized distribution chain

4
somewhere along the channel, usually, it seems, between distributor and retailer or

between retailer and consumer. The diverter then sells the product to an unauthorized

retail outlet from which the consumer can purchase the product. Unless the diverter has

found a supply through the manufacturer, the record before us suggests that the

diverter’s suppliers likely will be—or are somehow affiliated with—either authorized

distributors or authorized retailers. Rockafellow testified that, of his five to seven

suppliers of SalonQuest products, “some,” but not all, of them are salons.

We also learn from the record that several tools have been developed to deter,

eliminate, or identify diversion. In fact, it would appear that Patricia Urban, a private

investigator who owns an anti-diversion consulting company in Ohio and who testified

for SalonQuest at the hearing, has made a career of such efforts, having been involved

in the industry since 1989 and having worked with SalonQuest since its inception in the

late 1990s. Urban explained that there are contractual tools available to combat

diversion. One of those tools is a non-diversion agreement, typically made between a

distributor and an authorized retailer. In such agreements, the retailer agrees to certain

non-diversion measures such as audits, reporting requirements, and restrictions on

quantities to be sold. Typically, the manufacturer is named as a third-party beneficiary

to these agreements and, in the example in the record before us, is expressly granted

the right to enforce contractual provisions against the authorized retailer. From Urban’s

testimony, we understand that, in most instances, SalonQuest is a third-party

beneficiary to the non-diversion agreements between a distributor and an authorized

5
retailer of SalonQuest products. 1 Urban identifies these non-diversion agreements as

an “effective tool” in combating diversion.

We also learn of several available anti-diversion technologies developed in an

attempt to prevent diversion or to identify the route through which diversion is occurring.

Laser coding, UV coding, RFID tags, and other types of coding are used to track and

identify products along the distribution channel. While all parties seem to agree that

none of these higher technology tools is absolutely foolproof, there would appear to be

an understanding that they can serve to provide a deterrent effect or, at least, provide

the manufacturer or distributor with information regarding the sources of supply for the

diversion industry. 2 SalonQuest does not employ any of these coding or tracking

measures.

Analysis

Availability of Mandamus

Mandamus will issue only to correct a clear abuse of discretion or the violation of

a duty imposed by law when there is no other adequate remedy by law. Walker v.

Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding). Thus, evaluating whether

1
She did explain that in a small percentage of cases, SalonQuest would have a
non-diversion agreement directly with a salon. This was only done under certain
circumstances and was the atypical arrangement.
2
Rockafellow explained that the only guaranteed way to avoid diversion is for a
company to sell a product that no one wants. Under-the-label coding seems to be the
most effective anti-diversion measure that Rockafellow has encountered. He adds that
RFID tags have been used effectively, too. Beyond those two methods, Rockafellow
explained there are other measures but, as a diverter, he chose not to reveal those
measures so as to not offer even more assistance to SalonQuest in its anti-diversion
efforts.

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mandamus relief should be granted requires that we determine whether there has been

a clear abuse of discretion by the trial court and, if so, whether an adequate appellate

remedy exists. See id.

In particular, a trial court abuses its discretion when it erroneously compels

production of trade secrets without a showing that the information is “material and

necessary.” See In re Bass, 113 S.W.3d 735, 738, 743 (Tex. 2003) (orig. proceeding);

see also Walker, 827 S.W.2d at 840 (concluding that “a clear failure by the trial court to

analyze or apply the law correctly will constitute an abuse of discretion, and may result

in appellate reversal by extraordinary writ”). Further, the Texas Supreme Court has

held that no adequate appellate remedy exists if a trial court orders a party to produce

privileged trade secrets absent a showing of necessity. In re Bass, 113 S.W.3d at 745

(citing In re Cont’l Gen. Tire, Inc., 979 S.W.2d 609, 615 (Tex. 1998) (orig. proceeding)).

We will first address whether respondent abused his discretion by ordering that

Rockafellow disclose the information at issue. That is, we must determine whether

Rockafellow made the requisite showing that trade secret privilege applies to the

information requested and then, if so, whether SalonQuest made an adequate showing

that the information was necessary to fairly adjudicate its claims despite

characterization of the information as trade secret.

Trade Secret Privilege Generally

The trade secret privilege is governed generally by Texas Rule of Evidence 507:

A person has a privilege, which may be claimed by the person or the
person’s agent or employee, to refuse to disclose and to prevent other
persons from disclosing a trade secret owned by the person, if the

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 allowance of the privilege will not tend to conceal fraud or otherwise work
injustice. When disclosure is directed, the judge shall take such protective
measure as the interests of the holder of the privilege and of the parties
and the furtherance of justice may require.
TEX. R. EVID. 507. In the trial court, the party resisting discovery on the basis of the

trade secret privilege must establish that the information is a trade secret. In re Cont’l

Gen. Tire, 979 S.W.2d at 613. The burden then shifts to the requesting party to

establish that the information is necessary for a fair adjudication of its claims. Id. If the

requesting party meets this burden, the trial court should ordinarily compel disclosure of

the information, subject to an appropriate protective order. Id. In each circumstance,

the trial court must weigh the degree of the requesting party’s need for the information

with the potential harm of disclosure to the resisting party. Id. In other words, “[w]hen

trade secret privilege is asserted as the basis for resisting production, the trial court

must determine [1] whether the requested production constitutes a trade secret; [2] if so,

the court must require the party seeking production to show reasonable necessity for

the requested materials.” In re Union Pac. R.R., 294 S.W.3d at 591 (quoting In re Bass,

113 S.W.3d at 738).

Is the information sought trade secret?

A trade secret is “any formula, pattern, device or compilation of information which

is used in one’s business and presents an opportunity to obtain an advantage over

competitors who do not know or use it.” In re Bass, 113 S.W.3d at 739 (quoting

Computer Assocs. Int’l. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996)). Texas courts

consider the following factors in determining whether the material at issue qualifies for

the trade secret privilege: (1) the extent to which the information is known outside of his

8
business; (2) the extent to which it is known by employees and others involved in his

business; (3) the extent of the measures taken by him to guard the secrecy of the

information; (4) the value of the information to him and to his competitors; (5) the

amount of effort or money expended by him in developing the information; and (6) the

ease or difficulty with which the information could be properly acquired or duplicated by

others. In re Union Pac. R.R., 294 S.W.3d at 592; In re Bass, 113 S.W.3d at 739.

Because trade secret materials may not always “fit neatly into each factor every time”

and because other factors may also be relevant depending on the circumstances of a

particular case, we will weigh the factors in the context to determine whether the

materials qualify as trade secret. In re Bass, 113 S.W.3d at 740.

In a situation factually similar to the instant case, our sister court weighed the

factors of the balancing test to determine whether similar requested information was

trade secret. See John Paul Mitchell Sys. v. Randalls Food Mkts., Inc., 17 S.W.3d 721,

726, 737–39 (Tex.App.—Austin 2000, pet. denied). Paul Mitchell involved the same

general context at issue here: diversion of hair care products outside the manufacturer’s

preferred closed distribution chain. Id. at 726. In that case, Jade Drug Company sold

Paul Mitchell products to Randalls grocery stores, which are non-salon locations and lie

outside the preferred chain of distribution. Id. As was and did Rockafellow, Jade was

called on to provide its list of suppliers and resisted on the basis of trade secret. Id.

Jade established by affidavit that there was restricted access to its supplier list, it took

time and money to develop the list, the list was valuable to the company, and the list

was not readily obtained or duplicated. Id. at 738. The Austin court concluded that

9
Jade established that the list was “carefully compiled and closely guarded” and met its

burden of showing that its supplier list was trade secret. Id.

Here, by the affidavit also before us in the previous mandamus proceeding,

Rockafellow explained that he has been in this business for twenty-five years and that it

was “through substantial effort and expertise” that he developed his “vast network of

industry contacts and sources.” He also stated that his contacts and suppliers are “not

readily known to the public, and to a large extent, not readily known in the industry

itself.” Rockafellow explained the confidential nature of his relationships with the

suppliers and how MTBC’s network of contacts and sources is the “most valuable part

of its business” without which MTBC could not compete. Rockafellow went on to

explain that only he communicates with MTBC’s suppliers and, apart from him, only the

office manager and the warehouse manager have access to information that would

enable them to determine the identities of MTBC’s suppliers. Both managers had been

advised of the importance of keeping such information confidential. Rockafellow’s

affidavit also described the ramifications of having to divulge suppliers’ identities which,

according to Rockafellow, would quickly culminate in MTBC going out of business.

In this proceeding, we also have a record of the hearing on the motion to compel.

We now review that testimony, in addition to Rockafellow’s affidavit, to determine

whether the evidence still and again supports the conclusion that the information

sought—here, the identities of MTBC’s suppliers of SalonQuest products—is a trade

secret. See In re Union Pac. R.R., 294 S.W.3d at 592; In re Bass, 113 S.W.3d at 739.

10
(1) the extent to which the information is known outside of his business

Though diversion is a widely known concept in the hair care product business,

Rockafellow testified that he has developed his own contact list over the course of

twenty-six years and keeps that information to himself. Rockafellow has competitors

and, although it appears that Rockafellow is a known diverter within the hair care

products industry, his supply contacts are kept secret. Rockafellow testified that there

are approximately ten or eleven major competitors in the diversion business nationwide.

Again, they are widely known as diverters but their suppliers, too, are kept secret; he

does not know the identities of his competitors’ suppliers.

(2) the extent to which it is known by employees and others involved in his business

Rockafellow testified that only he, his office manager, and his warehouse

manager have access to information regarding the identities of clients who supply hair

care products to MTBC. He explained that, in the course of carrying on business, there

will be other employees who may have partial information but not “the whole puzzle.”

That is, it appears that a few other people within the organization may have limited

information regarding suppliers, but only Rockafellow does the negotiating and dealing

with a supplier or a prospective supplier.

(3) the extent of the measures taken by him to guard the secrecy of the information

Rockafellow explained that only a limited supply of products will travel outside the

intended closed channel of distribution and be available for diversion. So, supply is

limited, and, according to Rockafellow’s calculations, there are eleven or twelve major

diversion businesses competing for that supply. Consequently, Rockafellow takes

11
measures to protect his limited supply of products: “Everything is kept pretty secret.” In

his ongoing efforts to keep most everything secret, names of companies, telephone

numbers, bills of lading, and such are all kept “close to our vest.” As Rockafellow

explains, diversion, by its nature, means not revealing your supply contacts.

Nothing leaves the MTBC office unless the law requires that it must, and all

pertinent information is kept under lock and key. Rockafellow described his electronic

security system which unlocks the doors at 8:00 a.m. and sounds an alert when anyone

enters the building. The main entrance is composed of glass, too, so as to facilitate

identification of all those coming and going. At 5:00 p.m., the security system locks the

doors, and a person wishing to gain entrance must knock and receive permission to

enter the building. He adds that this system protects the company’s information but

also provides added security for employees’ safety. Officer workers are kept to the

minimum necessary to carry on business, and those employees cannot make copies

without permission. Rockafellow includes the cost of this very litigation as another

expense and another measure in guarding the secrecy of his contacts.

(4) the value of the information to him and to his competitors

Rockafellow explained that people in the diversion industry know one another but

do not know from whom one another is buying supply. He does not know his

competitors’ suppliers. Supply is vital to his business and, therefore, the identities of

those who supply the products for diversion is, likewise, vital. He explained that, if his

competitors were to obtain the identity of his suppliers, the competitors could outbid him

for the supply. In that event, the outcome is “simple”: he would eventually have nothing

12
to sell and would go out of business. Though we cannot arrive at a dollar amount that

the information would be worth to a potential competitor, we do learn from the record

that MTBC generated $45 million in total sales for the year 2011, which would lend itself

to the conclusion that the information at issue could be very valuable indeed. 3

(5) the amount of effort or money expended by him in developing the information

We learn that Rockafellow has spent twenty-six years developing relationships

with suppliers. We do not know what resources he has spent in developing those

relationships, but he does point out that he has expended money in protecting it.

Rockafellow explains that MTBC’s growing success is due in large part to the fact that

he is “known as someone who doesn’t give up his sources.” Indeed, he cites litigation

costs in resisting disclosure as an expenditure in furtherance of protecting his client list.

(6) the ease or difficulty of properly acquiring or duplicating information

It is difficult to determine the ease with which others could acquire or duplicate

the information, given that much of the dealings seem to rest on the reputations and

prior dealings with the diverter. As Rockafellow explains, he has developed his

suppliers’ list over the course of a quarter of a century, and he attributes his longevity in

the business to his reputation for protecting the identities of his supply sources. 4

3
We note that the total sales figure does include non-SalonQuest products but
emphasize, nonetheless, that the information at issue is valuable to MTBC and would
likely prove valuable to its competitors.
4
In its response to Rockafellow’s petition, SalonQuest points to a number of what
it considers inconsistencies between Rockafellow’s affidavit and his testimony in
support of its assertion that Rockafellow’s claim of trade secret are of “dubious
credibility.” SalonQuest characterizes these inconsistencies as factual disputes which

13
 Acknowledging SalonQuest’s point that Paul Mitchell stands in a different

procedural posture than does the instant case, we remain persuaded by our sister

court’s application of the relevant factors to a similarly situated party in a similar

business context. See Paul Mitchell, 17 S.W.3d at 738. With that, we still see no

compelling distinction between the examination of relevant facts by our sister court in

Paul Mitchell and still find its application of the balancing test in this context persuasive. 5

See id. In light of the relevant factors, we conclude that Rockafellow showed that

access to the information sought is strictly limited and is not readily accessible, the

information sought is highly valuable to MTBC, and the information sought is the

would defeat Rockfellow’s request for mandamus relief. Without addressing each of
SalonQuest’s examples, we note that we have evaluated the cited statements and
consider them more accurately characterized as elaboration or clarification in response
to specific questions on that particular subject.
5
Despite the primarily procedural distinctions between Paul Mitchell and the
instant case, we point out that the Austin court of appeals specifically addressed the
issue before us: “We now turn to the particular facts of this case to determine if the trial
court abused its discretion in refusing to compel discovery of Jade’s list of suppliers.”
Id. at 738. After analyzing the factors relevant to the application of the trade secret
privilege, the Paul Mitchell court ultimately concluded that “Jade met its burden of
establishing trade secret protection for its list of suppliers.” Id. SalonQuest maintains
that because no breach of contract claims against Jade’s suppliers were pending in that
case, the degree of necessity in Paul Mitchell was obviously distinguishable from the
case at bar. In other words, SalonQuest claims that it has a greater need for the
information than Paul Mitchell did in that case because SalonQuest, unlike Paul
Mitchell, has breach of contract claims pending in the underlying case. We
acknowledge this procedural distinction, but note, in response, that the fact that
SalonQuest does have pending breach of contract claims against as-yet unidentified
defendants has no bearing on the first step in our analysis. That is, the Austin court’s
well-developed analysis of the application of the trade secret privilege–which relates
solely to the resisting party’s burden–remains persuasive in our consideration of that
same first step in the analysis. Likewise, for purposes of analyzing this first step, we are
not at all persuaded by one of SalonQuest’s proposed factual distinctions, that one
being the fact that Paul Mitchell used UV coding and therefore could have discovered
the information by reviewing data gained from such coding. In fact, as we will discuss,
that distinction may very well come to weigh against SalonQuest in its efforts to make
an adequate showing of necessity.

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product of a great deal of time and effort on Rockafellow’s part and is not easily

accessible or duplicated. See id.; see also In re Union Pac. R.R., 294 S.W.3d at 592.

We conclude that Rockafellow carried his burden of showing that the supplier list and

information related to the identities of MTBC’s suppliers are trade secret. In doing so,

he successfully shifted the burden to SalonQuest to establish that such information was

necessary for a fair adjudication of its claims.

Is the Information Necessary for or Essential to Fair Adjudication?

We now address the second prong of the test in which we must determine if

discovery of this trade secret material is “necessary for a fair adjudication” of

SalonQuest’s claims. See In re Cont’l Gen. Tire, 979 S.W.2d at 613. Necessity

depends on whether the trade secret’s production is “necessary or essential to the fair

adjudication of the case.” In re Union Pac. R.R., 294 S.W.3d at 592. The Texas

Supreme Court has acknowledged that it has not “state[d] conclusively what would or

would not be considered necessary for a fair adjudication, indicating instead that the

application of the test would depend on the circumstances presented.” Id. (quoting In re

Bridgestone/Firestone, Inc., 106 S.W.3d 730, 732 (Tex. 2003) (orig. proceeding)). We

are directed to consider “the nature of information and the context of the case.” Id.

With this in mind, we revisit the general principles from cases on this subject.

It is not an adequate showing of necessity when the requesting party makes

general assertions of unfairness. 6 In re Union Pac. R.R., 294 S.W.3d at 592–93; see In

6
So, SalonQuest’s assertions which highlight the “shady” nature of the diversion
industry are inadequate to satisfy its burden of showing that the requested information is
necessary to the fair adjudication of its claims.

15
re Bridgestone/Firestone, 106 S.W.3d at 734 (concluding that “[t]he mere possibility of

unfairness is not enough to warrant disclosure” of trade secret). Further, there are

cases which suggest that we must also consider the availability of other means of

acquiring the requested information. See In re Cont’l Gen. Tire, 979 S.W.2d at 615

(adopting rule, pre-dating Texas Rule of Evidence 507, from Automatic Drilling Machs.,

Inc. v. Miller, 515 S.W.2d 256, 259 (Tex. 1974) (orig. proceeding), which considers

availability from other sources in determining whether disclosure of trade secret is

warranted); In re XTO Res. I, LP, 248 S.W.3d 898, 904–05 (Tex.App.—Fort Worth

2008, orig. proceeding) (concluding that requesting party failed to adequately show

necessity when the record revealed that, among other shortcomings, documents

“containing at least some of the [requested] underlying data were available from other

sources”). The Texas Supreme Court explained this “guiding principle[]”:

[T]rade secret information is generally discoverable when not allowing
discovery would significantly impair a party’s ability to establish or rebut a
material element of a claim or defense. A party’s ability is significantly
impaired when the information is unavailable from any other source and
no adequate alternative means of proof exist.
In re Bridgestone/Firestone, 106 S.W.3d at 736 (O’Neill, J. concurring). Indeed, the

requesting party who bears the burden of showing necessity of trade secret information

must demonstrate “with specificity exactly how the lack of the information will impair the

presentation of the case on the merits to the point that an unjust result is a real, rather

than a merely possible, threat.” Id. at 733 (majority opinion). So, it would appear that

the burden which has shifted to SalonQuest is a fairly heavy one.

Keeping in mind that our evaluation of SalonQuest’s “necessity” burden depends

on the nature of the information and the context of the case, we now turn to the

16
evidence SalonQuest has presented in support of its position that the requested trade

secret information is “necessary or essential for a fair adjudication of [its] claims.” See

id. at 731. SalonQuest explains generally that it “needs the information both for the

breach of contract claims asserted against the Jane Doe defendants as well as the

tortious interference claim and civil conspiracy claims asserted against Rockafellow.”

But, again, the issue becomes whether SalonQuest has demonstrated “with specificity

exactly how the lack of the information will impair the presentation of the case on the

merits to the point that an unjust result is a real, rather than a merely possible, threat.”

See id. at 733.

An assessment of this issue on these facts will call for an evaluation of what

SalonQuest has and has not done to otherwise discover the points at which diversion

has occurred along its distribution route. That is, we must look to determine whether

SalonQuest has established that not forcing Rockafellow to provide the identities of his

suppliers will pose a real threat—rather than a mere possibility—of an unjust result. Id.

And, here, when we cannot be confident from the record that SalonQuest is unable to

find out the requested information through any of a number of other available methods

for tracking or deterring diversion, we cannot conclude that SalonQuest has carried its

burden of showing such a threat.

The record reveals a number of available means of combating diversion, both

technological and contractual tools. The record also reveals that SalonQuest has not

fully employed many of those methods. With respect to high technology methods of

tracking and identifying diversion, SalonQuest considered, explored, but, ultimately,

rejected certain coding technology as too expensive. So, SalonQuest has, for business

17
reasons, opted not to employ technologically advanced methods of tracking its product

along the distribution channel. In defense of SalonQuest’s failure to use such methods

to detect deviations from the preferred distribution channel, its witness on anti-diversion

measures, Urban, testified to the following:

I can tell you in general terms that SalonQuest is a much smaller company
than most of these manufacturers that employ the high technology. We
know that it is an important tool. We continue to look at what we can do
cost effectively to enhance our ability. And frankly up until about two
years ago, and particularly with this HEB problem, we were doing a pretty
darn good job of controlling diversion using all of the other tools. It is
apparent that we need to continue to enhance because as much as we
have tried, we can’t. We have not been able to stem the source -- identify
and stop the source of this diverted product.
SalonQuest evidently undertook a cost-benefit analysis to arrive at its decision not to

use the advanced measures available for combating and identifying diversion. That

may, in fact, be a sound business decision, but that does not excuse SalonQuest in this

context from having to make a showing that it attempted to identify the suppliers from

within its own intended chain of distribution before it attempts to defeat Rockafellow’s

trade secret privilege. SalonQuest’s exercise of sound business judgment does not

mean that it can, then, simply resort to Rule 507 to gain access to the information from

Rockafellow when SalonQuest has, by its own admission, decided not to utilize other

available means of seeking out that information. SalonQuest cannot ask the courts to

use Rule 507 to eliminate or alleviate the risk of not using alternative—albeit more

expensive—means of obtaining the requested information.

SalonQuest has emphasized that these tracking and coding technologies are not

foolproof, and they may well be correct on that point, too. While it may be true that

these advanced tracking and coding methods would not yield the information which

18
SalonQuest seeks, the decision not to employ such means, again, is a business

decision, the risks of which should be borne by SalonQuest and not visited on

Rockafellow or the courts. Further, the possibility that, even with advanced means of

tracking, SalonQuest may not find what it seeks should not relieve them of the duty of

looking.

Moreover, it appears that, through agreements between its distributors and its

authorized retailers, SalonQuest retains some amount of power to compel audits of

retailer’s accounts. These agreements designate SalonQuest as a third-party

beneficiary and specifically grant SalonQuest the power to enforce the contract

provisions against the salon. So, it appears that SalonQuest could request audits either

in the cooperative spirit it maintains with its distributors or directly against the salons by

way of its rights as third-party beneficiary. The record suggests, however, that

SalonQuest has concentrated its efforts in reviewing data from one of its major

distributors and only with respect to one type of link on the distribution chain. Urban

explained the steps she took to identify MTBC’s suppliers:

I look at salon purchases. I look at distributor purchases. I interact with
the diversion control department at BSG corporate headquarters. I talk to
sales consultants. I talk to SalonQuest field reps. We have people out in
the field to go out and check salons to see product there. We utilize all of
the avenues that are available to us to try to determine where the leaks
are and to stop them wherever they may be occurring.
Urban added that she “work[ed] closely with the diversion control department” of one of

its large distributors in investigating instances of diversion. She explained that she

asked the distributor’s “diversion control person” to work with Urban and SalonQuest to

review salon accounts, and personally reviewed sales reports from the distributor for

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“potentially questionable purchasing patterns” by salons. From her testimony on the

measures employed to find out on its own the information requested, it appears that the

measures were limited largely to data from the distributor. Nothing in the record

suggests that SalonQuest exercised what seems to be its right to inspect authorized

salon’s sales data. In other words, it appears that SalonQuest has sought assistance

from one of its larger distributors and enlisted its assistance in routing out the diverting

salons, but there is no evidence to suggest that SalonQuest has utilized the full

spectrum of anti-diversion investigatory tools that are available through its contractual

rights as third-party beneficiary to the distributor-salon non-diversion agreements.

We remind the parties that we are directed to examine each case on its own

circumstances. See In re Union Pac. R.R., 294 S.W.3d at 592. We have considered

the nature of information at issue here and the context in which it was developed and is

sought. See In re Bridgestone/Firestone, 106 S.W.3d at 732. With that in mind and

understanding that the availability of the requested information through other sources is

not a dispositive consideration, we observe that availability is, likewise, not one which

we can overlook in this context considering the nature of the information at issue. Cf. In

re West Tex. Positron, Ltd., No. 07-04-00506-CV, 2005 Tex. App. LEXIS 496, at *13–15

(Tex.App.—Amarillo Jan. 20 2005, orig. proceeding) (mem. op.) (considering availability

of requested information in concluding that requesting party demonstrated requisite

need for information and denying mandamus relief). 7 In this context, the potential harm

7
Of course, availability from other sources is a consideration which can weigh in
favor of either party as illustrated by our opinion in West Texas Positron, in which we
observed that the requesting party had shown that the requested information was “not
ascertainable elsewhere” and “could be obtained from only two sources, those being the
partnership’s records . . . and the customers themselves, and the customers were

20
of disclosure outweighs the degree of the requesting party’s need for the trade secret

information. See In re Cont’l Gen. Tire, 979 S.W.2d at 613.

Here, in light of evidence that SalonQuest could procure the information from

other sources or through alternative avenues which it has yet to adequately explore, we

conclude that it has failed to make an adequate showing that compelling disclosure of

trade secret information was necessary for a fair adjudication of its claims. See In re

Union Pac. R.R., 294 S.W.3d at 592.

Rule 507 and Fraud or Injustice

Rule 507 permits the application of the trade secret privilege “if allowance of the

privilege will not tend to conceal fraud or otherwise work injustice.” See TEX. R. EVID.

507. Both at the trial court and before this Court, SalonQuest has vigorously advanced

the position that diversion is “a shady business” and is not worthy of trade secret

protection. In doing so, it seems to be asking the Court to declare the diversion industry

in its entirety an injustice or fraud. 8 But the seemliness and fate of the diversion

business are issues which belong more appropriately to the industry and marketplace

forces. The courts are not in the business of deterring diversion, nor can we endorse

subject to confidentiality agreements in their contracts with the partnership.” See id. at
*15. On those facts, the requesting party had shown that the requested information was
“necessary to [her] ability to pursue judicial determination of the value of her partnership
interest.” Id. at *14.
8
In fact, it could be understood that the “fraud-or-injustice” portion of Rule 507
served as the thrust of SalonQuest’s contention. SalonQuest’s attorney remarked to the
trial court at the opening of the hearing that “the key question for this Court is the
second part of Rule 507, which says it should still be allowed if the allowance of the
privilege will not tend to conceal fraud or otherwise work injustice.”

21
the practice of resorting to Rule 507 as an alternative marketplace tool for investigating

it when other investigatory means exist but have not been utilized.

Summary

In summary, Rockafellow met his burden of showing MTBC’s list of suppliers was

trade secret and, thereby, shifted the burden to SalonQuest to show that disclosure of

the information was necessary for a fair adjudication of its claims. SalonQuest failed to

make such a showing. It did show that disclosure through Rockafellow would likely be

more convenient and probably more accurate but, in this instance, it is not necessary for

a fair adjudication of SalonQuest’s claims that Rockafellow be required to disclose the

trade secret information. Therefore, the trial court abused its discretion when it

authorized the deposition of Rockafellow and compelled disclosure of trade secret

information without an adequate showing by SalonQuest that such information was

necessary for a fair adjudication of its claims. See In re Bass, 113 S.W.3d at 738, 743.

Conclusion

Having concluded that the information in question was trade secret and not

discoverable as privileged information pursuant to Rule 507 in the absence of an

adequate showing of necessity, which SalonQuest has failed to make, we conclude that

Rockafellow has shown he is entitled to mandamus relief as requested. Accordingly,

we conditionally grant the petition for writ of mandamus and direct the respondent to

vacate its order dated August 7, 2012, in which it ordered the disclosure of documents

concerning the identities of MTBC’s suppliers of SalonQuest products. Because we are

confident the respondent will comply with this directive, the writ will issue only if the

22
respondent fails to do so. Our disposition of this case serves to lift the stay previously

imposed by the Court. See TEX. R. APP. P. 52.10(b).

Mackey K. Hancock
Justice

Quinn, C.J., dissenting.

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