COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-09-00450-CV
PAULA GAUGHAN AND DEAN APPELLANTS
SANDERS
V.
NATIONAL CUTTING HORSE APPELLEE
ASSOCIATION
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FROM THE 67TH DISTRICT COURT OF TARRANT COUNTY
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OPINION
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I. Introduction
Appellants Paula Gaughan and Dean Sanders (collectively, Gaughan) and
Appellee National Cutting Horse Association (the NCHA) filed cross-motions for
summary judgment in Gaughan‘s suit against the NCHA for a declaratory
judgment that the NCHA‘s books and records that Gaughan sought to inspect
and copy are not confidential. The trial court initially entered a protective order in
favor of the NCHA that prohibited Gaughan from disseminating the NCHA‘s
books and records to others. Later, the trial court granted the NCHA‘s motion for
summary judgment, denied Gaughan‘s motion for summary judgment, and
incorporated the protective order into the final judgment. Gaughan contends in
three issues that the trial court erred by entering the protective order and thereby
prohibiting her from disclosing documents designated as confidential by the
NCHA, by granting summary judgment for the NCHA on the ground that the
NCHA‘s records are entitled to confidential treatment under the law, by denying
her motion, and by ruling that there are no genuine issues of material fact
concerning the reasonableness and necessity of the NCHA‘s attorney‘s fees.
We affirm.
II. Factual and Procedural Background
The NCHA is a non-profit corporation organized and existing under Texas
law. Gaughan is a member in good standing of the NCHA.1 On April 21, 2008,
Gaughan made a written request pursuant to article 1396-2.23 of the Texas Non-
Profit Corporation Act to ―inspect the books and various financial records of the
NCHA.‖2 Gaughan requested six categories of documents from the NCHA—
1
Sanders was originally a plaintiff in this lawsuit, but he withdrew from the
lawsuit as a plaintiff. He is a party to this appeal because he and Gaughan are
jointly and severally liable under the trial court‘s judgment for the NCHA‘s
attorney‘s fees.
2
The written request actually cited Texas Business Organizations Code
section 22.351, the successor to article 1396-2.23. See Tex. Bus. Org. Code
2
including employment contracts, bank statements, payroll records, and payments
to vendors—for the stated purpose that Gaughan was ―genuinely interested in
fostering increased participation in NCHA events by lowering the costs
associated with that participation and making sure that the membership dues and
other monies received by the NCHA are being spent with the best interests of the
NCHA membership in mind.‖ The NCHA responded to Gaughan‘s letter on April
28, 2008, enclosing audited financial statements for the years 2004 through
2007, but it requested that Gaughan clarify her stated purpose, pay for staff and
professional time necessary to respond to the request, and agree to maintain the
confidentiality of certain information relating to third parties (such as employees
and vendors) before the NCHA would produce the remaining requested records.
Gaughan responded to the NCHA on May 9, 2008, disagreeing that her
stated purpose was inadequate but also clarifying that she wished to review the
financial records to confirm that the ―NCHA is not guilty of waste or
mismanagement in its financial affairs and in the administration of the NCHA‘s
business.‖ Gaughan declined to enter into a confidentiality agreement and
objected to paying for staff or professional fees associated with the NCHA‘s
compliance with her inspection request. Gaughan also requested that all
responsive documents be produced within one week.
Ann. § 22.351 (West 2009). However, the parties agree that article 1396-2.23
applies to this case.
3
The NCHA responded on May 13, 2008, again asserting the confidentiality
of some of its records, specifically records relating to its employees, third-party
vendors, and sponsors. The NCHA stated that the confidentiality of its records
―does not mean that you cannot have access to some or all of the information
you desire[,] but it does mean that any access you may have must be in
accordance with procedures which are in the best interest of [the NCHA] and
include fulfilling [the NCHA]‘s obligation of confidentiality.‖
Gaughan filed suit against the NCHA on May 20, 2008, seeking a judicial
declaration that she is entitled to inspect and photocopy each of the categories of
records identified in her April 21, 2008 letter. Gaughan also sought and obtained
a temporary restraining order to prevent the NCHA from destroying or altering the
records she sought to inspect and copy. The NCHA filed a motion to dissolve the
temporary restraining order and offered to disclose all documents requested by
Gaughan subject to entry of a protective order to prevent her disclosure of
information the NCHA believed to be confidential. Following the hearing on the
NCHA‘s motion, the trial court dissolved the temporary restraining order and
granted the NCHA‘s request for entry of a protective order.
The trial court then signed a protective order permitting the NCHA to
designate certain documents that it had agreed to produce to Gaughan as
confidential (by stamping ―Confidential‖ in a conspicuous manner on each page
to be so designated) and prohibiting Gaughan from reproducing, disclosing, or
disseminating those documents to anyone other than her counsel except upon
4
order of the trial court. The order stated that it was entered solely to facilitate
review and provided that at any time after delivery of documents designated as
confidential, counsel for Gaughan could challenge the designation by written
notice to the NCHA and a motion to challenge the confidential nature of all or a
portion of the information, in which event the NCHA would have the opportunity
to establish that the disputed documents were entitled to confidential treatment.
After entry of the protective order, the NCHA produced 89,214 pages of
documents to Gaughan but designated 36,556 of those pages as confidential as
permitted by the protective order. It is undisputed that Gaughan reviewed and
copied all documents she requested from the NCHA, including the documents
designated as confidential. The NCHA also counterclaimed against Gaughan,
seeking recovery of its attorney‘s fees and a judicial declaration that it had ―acted
reasonably and in accordance with the law in responding to [Gaughan‘s]
requests to review the NCHA documents.‖
Gaughan and the NCHA eventually filed cross-motions for summary
judgment. In her motion, Gaughan requested, among other things, a judicial
declaration that ―NCHA may not prevent [her] from disclosing to her fellow NCHA
members or to other third parties the substance and form of all records reflecting
the NCHA‘s financial activity.‖3 Gaughan argued that articles 1396-2.23 and
3
Gaughan sought three additional judicial declarations via summary
judgment, but she does not assert on appeal that the trial court erred by denying
her motion for summary judgment on those grounds. Thus, we do not address
Gaughan‘s request for those three additional judicial declarations. See generally
5
1396-2.23A of the non-profit corporation act required the NCHA to make its
books and records available to members and the general public alike, that the
NCHA is therefore precluded from designating any of its financial records as
confidential, and that the trial court should withdraw the protective order because
it contravenes articles 1396-2.23 and 1396-2.23A. In addition, Gaughan‘s motion
for summary judgment included the following alternative request for relief:
Strictly in the alternative, and only because [the trial court‘s]
Protective Order otherwise requires it and remains in force until it is
withdrawn as requested hereinabove, Gaughan moves the Court to
conduct an in camera inspection of the 36,556 pages of NCHA
books and records that the NCHA has classified as confidential and,
upon inspection of same, declare that they are not properly
classified as confidential documents given the statutory mandate
that they be made available to the NCHA members and the general
public alike. [Emphasis added.]
The NCHA‘s motion sought summary judgment on its claims for a judicial
declaration and attorney‘s fees. Within the motion, the NCHA argued that
Gaughan did not need to file the lawsuit to obtain the requested documents; that
Texas law supports the trial court‘s entry of the protective order; that the
protective order provided a mechanism for Gaughan to challenge the NCHA‘s
designation of any document as confidential; and that Gaughan had never
challenged the NCHA‘s designation of any document as confidential—despite
LeBlanc v. Riley, No. 02-08-00234-CV, 2009 WL 885953, at *3 (Tex. App.—Fort
Worth Apr. 2, 2009, no pet.) (mem. op.) (holding that a general issue broadly
challenging a summary judgment is permissible but requiring an appellant to
present argument and legal authority on appeal to preserve error on a particular
cause of action on which the trial court granted summary judgment).
6
having possession of the vast majority of the documents for months—but instead
claimed that no information contained in the documents requested under art.
1396-2.23 could be treated as confidential and that the protective order regarding
the documents requested was contrary to law.
In its final judgment granting the NCHA‘s motion for summary judgment
and denying that of Gaughan, the trial court declared that the NCHA had fully
complied with all of Gaughan‘s requests to review documents of the association
and all legal requirements, that the NCHA had designated documents as
confidential in accordance with the protective order, that Gaughan had taken no
action to contest the designations, and that the documents designated as
confidential by the NCHA were thus entitled to confidential treatment as a matter
of law. The trial court further ordered Gaughan to return all records marked as
―Confidential‖ to the NCHA and to not disclose, disseminate, or reveal any of the
―Confidential‖ records or their contents to any third parties. This appeal followed.
III. Standard of Review
We review a summary judgment de novo. Travelers Ins. Co. v. Joachim,
315 S.W.3d 860, 862 (Tex. 2010). We consider the evidence presented in the
light most favorable to the nonmovant, crediting evidence favorable to the
nonmovant if reasonable jurors could, and disregarding evidence contrary to the
nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We indulge every
reasonable inference and resolve any doubts in the nonmovant‘s favor. 20801,
7
Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008). A defendant who conclusively
negates at least one essential element of a cause of action is entitled to
summary judgment on that claim. Frost Nat’l Bank v. Fernandez, 315 S.W.3d
494, 508 (Tex. 2010); see Tex. R. Civ. P. 166a(b), (c). When both parties move
for summary judgment and the trial court grants one motion and denies the other,
the reviewing court should review both parties‘ summary judgment evidence and
determine all questions presented. Mann Frankfort, 289 S.W.3d at 848; see
Myrad Props., Inc. v. Lasalle Bank Nat’l Ass’n, 300 S.W.3d 746, 753 (Tex. 2009).
The reviewing court should render the judgment that the trial court should have
rendered. Mann Frankfort, 289 S.W.3d at 848.
IV. Discussion
A. The Protective Order
Gaughan contends in her first issue that the trial court erred by entering
the protective order and declaring by summary judgment that any of the NCHA‘s
records regarding its business transactions with sponsors, vendors, and
employees are entitled to confidential treatment under the law. She contends the
trial court‘s orders are contrary to the Texas statutes that require non-profit
corporations to make their financial records open and available for inspection and
copying by the general public. Specifically, Gaughan argues that because the
NCHA is a non-profit corporation obligated by article 1396-2.23A to make its
records, books, and annual reports available to the public for inspection and
copying, it cannot shield those records behind a claim of confidentiality. The
8
NCHA responds that a member of a non-profit corporation may inspect ―a much
broader spectrum of records‖ under article 1396-2.23 than the public is entitled to
inspect under article 1396-2.23A and that protective orders are permissible under
Texas law to ensure that confidential information provided to members pursuant
to these or similar inspection statutes is protected from disclosure to others.
1. Articles 1396-2.23 and 1396-2.23A
Article 1396-2.23 of the Texas Non-Profit Corporation Act provides:
A. Each corporation shall keep correct and complete books and
records of account and shall keep minutes of the proceedings of its
members, board of directors, and committees having any authority of
the board of directors and shall keep at its registered office or
principal office in this State a record of the names and addresses of
its members entitled to vote.
B. A member of a corporation, on written demand stating the
purpose of the demand, has the right to examine and copy, in
person or by agent, accountant, or attorney, at any reasonable time,
for any proper purpose, the books and records of the corporation
relevant to that purpose, at the expense of the member.
Tex. Rev. Civ. Stat. Ann. art. 1396-2.23 (expired Jan. 2010). Similarly, but not
identically, article 1396-2.23A provides, in relevant part:
A. A corporation shall maintain current true and accurate financial
records with full and correct entries made with respect to all financial
transactions of the corporation, including all income and
expenditures, in accordance with generally accepted accounting
practices.
B. Based on these records, the board of directors shall annually
prepare or approve a report of the financial activity of the corporation
for the preceding year. . . .
C. All records, books, and annual reports of the financial activity of
the corporation shall be kept at the registered office or principal
9
office of the corporation in this state for at least three years after the
closing of each fiscal year and shall be available to the public for
inspection and copying there during normal business hours. The
corporation may charge for the reasonable expense of preparing a
copy of a record or report.
Id. art. 1396-2.23A (expired Jan. 2010) (emphasis added).
2. Scope and Purpose of article 1396-2.23A (public’s right to inspect)
Gaughan argues that, because article 1396-2.23A mandates public access
to the financial records of a non-profit corporation, the protective order allowing
the NCHA to shield its financial records from public disclosure by designating
them as confidential is contrary to Texas law. However, Gaughan‘s argument is
premised on the incorrect assumption that all of the records of a non-profit
corporation that a member is entitled to inspect and copy are financial records
available to the public generally. As is clear from article 1396-2.23(B), a member
of a non-profit corporation may, following written demand stating a proper
purpose, examine ―the books and records of [that] corporation relevant to that
purpose.‖ Id. art. 1396-2.23(B). Under article 1396-2.23A, however, a member
of the public may only inspect the ―records, books, and annual reports of the
financial activity of the corporation.‖ See id. art. 1396-2.23A (emphasis added).
Thus, the NCHA argues, a member of the public may only inspect financial
records of a non-profit corporation while a member of the corporation may
inspect all records of that corporation. See id. arts. 1396-2.23, 1396-2.23A.
The records Gaughan received from the NCHA include both financial
records available for inspection by the public and non-financial records not
10
available for inspection by the public. For example, Gaughan received vendor,
sponsorship, and employment contracts and documents containing the
addresses and Social Security Numbers of the NCHA‘s employees. Article 1396-
2.23A, addressing the public‘s right of inspection, does not provide that the public
has the right to inspect records that are not financial records.
Moreover, article 1396-2.23, addressing the right of a member to inspect a
broader spectrum of records than is allowed for the public, provides for neither a
right of inspection by the public of such records nor a right by a member to
publish such information to the public.4 Thus, the NCHA argues, and we agree,
that Gaughan‘s theory that she is entitled to disseminate or share with the public
all documents she received would engraft a right of inspection by the public onto
article 1396-2.23, which speaks only to the right of inspection by members. If the
legislature had intended that a member would have the right to disclose all books
and records of a non-profit corporation to the public, there would have been no
need for two separate statutes and no need to require a member to provide a
written request stating a proper purpose. Therefore, we decline to adopt
Gaughan‘s interpretation of the two statutes by conflating them so as to provide a
4
When the legislature passes two separate statutes on the same general
subject matter, it is presumed to have done so for a particular purpose, and
meaning must be given to both statutes. See Aldine Indep. Sch. Dist. v. Ogg,
122 S.W.3d 257, 270 (Tex. App.—Houston [1st Dist.] 2003, no pet.); Font v.
Carr, 867 S.W.2d 873, 881 (Tex. App.—Houston [1st Dist.] 1993, writ dism‘d
w.o.j.).
11
right of the public to inspect all books and records of a non-profit corporation,
including records only available to members.
The Texas Supreme Court has held that the phrase ―financial records‖ in
article 1396-2.23A ―does not include the names of contributors or members‖ and
that article 1396-2.23A ―does not require the blanket disclosure of contributors‘
names for public inspection.‖ In re Bay Area Citizens Against Lawsuit Abuse,
982 S.W.2d 371, 381–82 (Tex. 1998) (hereinafter BACALA). In so holding, the
BACALA court looked to the legislative intent of that statute, observing that it
appeared ―that article 1396-2.23A was intended to remedy a specific problem:
the lack of accountability regarding a non-profit corporation‘s use of funds
solicited from the public.‖ Id. at 381 (citing Texas Appellate Practice & Educ.
Resource Ctr. v. Patterson, 902 S.W.2d 686, 689 (Tex. App.—Austin 1995, writ
denied)). In that regard, the court quoted relevant background information from
the bill analysis regarding article 1396-2.23A‘s purpose:
During the last interim, the author attempted to conduct a study of a
non-profit drug rehabilitation program in Houston. This program had
been soliciting funds from the public and portrayed itself as a
charitable endeavor. However, there were rumors that its funds
were being used for investments in such businesses as nightclubs.
During the six month investigation, the author of this bill was unable
to determine how the program‘s funds were being used because the
records were inadequate. A major recommendation from the study
was that Texas law should be amended to require non-profit
organizations soliciting funds from the public to keep adequate
records showing how the funds were actually being used.
Id. at 381 (quoting Senate Comm. on Bus. & Indus. Bill Analysis, Tex. S.B. 857,
65th Leg., R.S. (1977)). Thus, the BACALA court concluded the purpose of the
12
legislation was not to force non-profit corporations to identify the exact sources of
their income but was instead designed ―to expose the nature of the expenditures
of that money once received from the public and to make non-profit organizations
accountable to their contributors for those expenditures.‖ Id. The court
continued, ―[T]he seemingly broad scope of the statute‘s language is not
matched by the legislative intent behind the statute.‖ Id.; see also Patterson, 902
S.W.2d at 688–89 (concluding legislature designed art. 1396-2.23A as a
mechanism for making non-profit corporations accountable for donations solicited
from the public).
It follows that, although amounts received from or paid to vendors,
sponsors, or employees may constitute ―financial records,‖ the underlying
contracts themselves (or the employees‘ addresses and social security numbers)
are not financial records that the public is entitled to inspect. See BACALA, 982
S.W.2d at 381–82. Thus, even assuming that the public is entitled by art. 1396-
2.23A to inspect all financial documents of a non-profit corporation without regard
to confidentiality, a question we are not called upon to decide, we must still
determine whether documents Gaughan may inspect under art. 1396-2.23 (and
which are not available to the public) may be subject to protection from
disclosure to others because of confidentiality considerations.5
5
Because Gaughan is a member of the NCHA, the applicable statute in this
case is article 1396-2.23(B), governing the right of a member of a non-profit
corporation, not the right of the public under article 1396-2.23A.
13
3. Scope and Purpose of article 1396-2.23 (member’s right to inspect)
Gaughan asserts that the scope of article 1396-2.23, which provides for
the inspection rights of a member of a non-profit corporation, is absolute in
prohibiting any record from being treated as confidential and does not allow a
non-profit corporation to require a pledge or order of non-disclosure in order to
inspect and copy its records. We disagree for reasons urged by the NCHA.
Decisions under article 1396-2.23 recognize that the statute is not absolute
in its disclosure requirements for members and that orders to protect confidential
information are proper in requests made under that statute. In Citizens Ass’n for
Sound Energy (CASE) v. Boltz, 886 S.W.2d 283, 285–86 (Tex. App.—Amarillo
1994, writ denied), cert. denied, 516 U.S. 1029 (1995), a member of CASE, a
non-profit association, sought review of CASE‘s records under article 1396-2.23.
CASE opposed the production of certain documents and challenged the
constitutionality of the statute. Id. at 286. The trial court entered a protective
order addressing the confidential nature of the requested documents and ordered
CASE to produce such documents under that protective order. Id. at 287. On
appeal by CASE, the court of appeals affirmed, holding that in view of the
protective order which prohibited the member from disclosing the confidential
information contained in such documents, CASE‘s challenges to the statute were
without merit. Id.
In Professional Microfilming, Inc. v. Honorable Sam Houston, 661 S.W.2d
767, 768 (Tex. App.—Fort Worth 1983, orig. proceeding), a case in which
14
mismanagement of Professional Microfilming, Inc. (PMI) was alleged, this court
considered a financial records request by a shareholder and former director of
PMI. On mandamus, PMI complained of a discovery order by the trial court that
would have allowed the shareholder, who had become a competitor of PMI, to
review records containing PMI‘s sensitive customer, cost, and pricing information
pursuant to a request made under business corporations act article 2.44.6 Id. at
768–69. PMI asserted that any such review of PMI‘s confidential information by
the shareholder would be damaging to PMI. Id. The trial court required PMI to
produce the information but entered an order prohibiting the shareholder and
former director from disclosing any of the contents of those records to third
parties. Id. at 769. In denying mandamus relief sought by PMI, this Court stated:
We also hold that Judge Houston‘s discovery order adequately
considered the sensitivity of the requested data, and the potential for
misuse of that data by Hightower and Eikon. Judge Houston‘s order
enjoined Hightower from disclosing the information or using it for
purposes other than those connected with the litigation. The order
also provided that the documents requested to be produced be
sealed in envelopes and filed with the court, to be opened only by
order of the court. Judge Houston thus set up a procedure which
would allow him to examine each document before disclosing it to
6
Texas Business Corporations Act article 2.44 entitled directors and certain
shareholders of a corporation to review the books and records of a corporation
for any proper purpose. Tex. Rev. Civ. Stat. Ann. art. 2.44. (expired Jan. 2010);
see also Tex. Bus. Org. Code Ann. § 21.218 (West 2009) (current version of
expired article 2.44). That statute, which is applicable to for-profit corporations, is
similar to article 1396.-2.23, which is applicable to non-profit corporations and at
issue in this case. Texas courts have looked to precedent under article 2.44
when dealing with issues presented under article 1396-2.23. See CASE, 886
S.W.2d at 289.
15
Hightower, and impose even greater restrictions than the initial
injunction if necessary.
Id. at 770 (emphasis added). Thus, we acknowledged in PMI that the need to
protect certain confidential information from dissemination to others may exist
even when a statutory right to inspection by the shareholder is invoked. Id.; see
also Lewis v. Pa. Bar Ass’n, 701 A.2d 551, 555 (Pa. 1997) (holding documents
otherwise accessible to members may be protected from disclosure to third
parties by considerations of privacy, such as references to employee‘s health
records; privilege, such as records protected by attorney-client privilege or work
product doctrine; or confidentiality where both corporate purpose and public‘s
interest are served by keeping information confidential); Stroud v. Grace, 606
A.2d 75, 89 (Del. 1992) (holding corporation‘s refusal to provide certain financial
information to shareholder without confidentiality agreement signed by
shareholders did not violate corporation‘s duty of disclosure); Pershing Square,
L.P. v. Ceridian Corp., 923 A.2d 810, 819–20 (Del. Ch. 2007) (holding publication
to others by shareholder may be limited where information is confidential and
release would harm company); Disney v. The Walt Disney Co., 857 A.2d 444,
446 (Del. Ch. 2004) (holding that shareholder could not use right of inspection to
publicly disseminate otherwise confidential records and that production was
properly conditioned upon confidentiality agreement, subject to challenge of
company‘s designation in court if parties could not resolve disagreements).
16
Gaughan relies upon Sharyland Water Supply Corp. v. Block, 755 F.2d
397 (5th Cir. 1985), as the single case to support her position. Gaughan cites a
statement from the opinion in that case for the proposition that article 1396-2.23
neither forbids a member from disclosing books and records provided to him by a
non-profit corporation nor requires the member to pledge non-disclosure to
others in order to obtain the corporation‘s books and records. Id. at 398. But
Sharyland does not support the proposition that no restrictions on dissemination
to others can be placed on an article 1396-2.23 request by a member of a non-
profit corporation. That case did not deal with the right to inspect books and
records under article 1396-2.23; rather, it involved a Freedom of Information Act
request made to a third party to whom the corporation had provided information
as part of a loan application. Id. Moreover, Sharyland is distinguishable because
it involved audited financial statements that a member of the public is entitled to
inspect under article 1396-2.23A. Id. at 399. The NCHA does not dispute that its
audited financial reports are subject to disclosure under the Freedom of
Information Act.
In addition, a member‘s own right to inspect and copy books and records
under article 1396-2.23 does not trump privileges or other rights to confidentiality
provided for by Texas law. In Huie v. DeShazo, 922 S.W.2d 920, 923–25 (Tex.
1996), the supreme court held that a trustee‘s duty of disclosure does not
override the attorney-client privilege and expressly rejected a claim that the
provisions of article 1396-2.23 overrode a claim of attorney-client privilege. In
17
analyzing an argument similar to the one made by Gaughan in this case, the
Texas Supreme Court held as follows:
[Real party in interest] Chenault relies on Burton v. Cravey, 759
S.W.2d 160 (Tex. App.—Houston [1st Dist.] 1988, no writ), for the
proposition that the attorney-client privilege does not apply where a
party has a right to information independently of the rules of
discovery. In Burton, condominium owners filed a trial court
mandamus action against the condominium association to enforce
their statutory right to inspect the association‘s books and records.
See Tex. Prop. Code Ann. § 81.209; Tex. Rev. Civ. Stat. Ann. art.
1396-2.23. The trial court allowed inspection of the records,
including those in the possession of the association‘s attorney,
finding as a factual matter that the attorney‘s records constituted part
of the association‘s records. The court of appeals affirmed, holding
that the attorney-client privilege did not apply in light of the owners‘
unqualified right of inspection. 759 S.W.2d at 162.
It is unclear whether the records at issue in Burton were
merely records of the association in the possession of the attorney,
or whether they contained separate confidential attorney-client
communications. To the extent that they consisted of the former, we
agree that they were not protected. See [Nat’l Tank Co. v.]
Brotherton, 851 S.W.2d [193,] 199 [(Tex. 1993)]. However, to the
extent that the court held that the owners’ statutory right of
inspection somehow trumped the privilege for confidential attorney-
client communications, we disapprove of its holding, for the reasons
previously discussed. We also disapprove of the court’s dicta that
the trial court could, in its discretion decline to apply the attorney-
client privilege even if all the elements of Rule 503 were met. See
759 S.W.2d at 162.
Id. at 924 (emphasis added). Other jurisdictions agree. See Schein v. N. Rio
Arriba Elec. Coop., Inc., 122 N.M. 800, 806 (N.M. 1997) (holding corporate
documents subject to attorney-client privilege may be withheld from shareholders
but upholding denial of protection for information examined by trial court in
camera and found not to contain indicia of confidentiality); Nat’l Football League
18
Props., Inc. v. Superior Court, 75 Cal. Rptr. 2d 893, 898 (Cal. Ct. App. 1998)
(holding shareholder status does not in and of itself entitle an individual to
unfettered access to corporate confidences); Riser v. Genuine Parts Co., 150
Ga. App. 502, 504 (Ga. Ct. App. 1979) (holding trial court did not err by denying
corporate information to shareholder that contained confidential management
information, legal opinions, and personnel evaluation in absence of compelling
reason); Morton v. Rogers, 20 Ariz. App. 581, 586 (Ariz. Ct. App. 1973) (holding
right of director and shareholder to examine books and records does not extend
to trade secrets); see also In re LTV Secs. Litig., 89 F.R.D. 595, 604 (N.D. Tex.
1981) (applying federal law in securities fraud suit and recognizing shareholder‘s
statutory or common law right to inspection could not overcome otherwise valid
assertion of attorney-client privilege); 5A FLETCHER CYCLOPEDIA OF THE
LAW OF CORPORATIONS § 2239.10 (2011) (collecting cases holding
shareholders not entitled to trade secrets or confidential information contained in
books and records of corporation unless such affects financial status of
corporation or value of stock).7
7
Gaughan does not contend that she has been denied the opportunity to
inspect confidential or attorney-client communications, but the broader principle
revealed by BACALA, Huie, CASE, PMI, and similar opinions—that the scope of
the right of inspection for members of a non-profit corporation may be limited by
legitimate considerations of privilege, trade secrets, and confidentiality—as well
as the differing access granted to members and the public under articles 1396-
2.23 and 1396-2.23A, reveals that even members of a non-profit corporation do
not have unfettered access to the non-profit‘s corporate records.
19
Moreover, by accepting and renewing her membership each year in the
NCHA, Gaughan has agreed to abide by the rules, policies, and agreements
made by the NCHA. Gaughan has not disputed that those rules include the
Employee Handbook and the Financial Disclosure Policy and Procedure adopted
by the executive committee of the NCHA in 2004, which contain the association‘s
policies for treating employee and third party business information as
confidential. By its Employee Handbook and the Disclosure Policy, the NCHA
makes representations to its employees, vendors, sponsors, and other persons
with whom it does business that it will maintain certain information as
confidential. Gaughan disputes that any employment contract or business
agreement with vendors or sponsors produced to her by the NCHA contain
confidentiality agreements, but the documents in question have not been made a
part of the record on appeal. In any event, the Disclosure Policy limits the right of
the NCHA and its members to further disseminate such information to others
because the NCHA has an obligation to protect the information as confidential.
Gaughan has not argued or cited any authority to the effect that she cannot
contractually agree not to disseminate to the public or the press any confidential
information provided to her as a member.
That Gaughan may be entitled to review the requested records under the
applicable statute as a member of the corporation does not mean that she can do
so without maintaining the confidentiality of information contained in those
documents as agreed by her and as ordered by the trial court. The above-
20
referenced cases recognize that fact. The same type of prophylactic protective
order afforded in both CASE and PMI was properly afforded by the trial court in
this case; that is, Gaughan‘s receipt, inspection, and copying of the books and
records of the NCHA was subject to the procedure outlined in the order
prohibiting her from sharing with others the documents designated ―Confidential‖
by the NCHA unless she challenged the confidential designation of specific
documents or categories of documents, providing the NCHA the opportunity to
furnish proof to support its designation of confidentiality. We agree with the
NCHA that this is the only way to balance and reconcile Gaughan‘s statutory
right to review such documents and the NCHA‘s duty to maintain as confidential
third party business information contained in those documents.
4. Confidentiality as to other members of the NCHA
On appeal, Gaughan has argued that she only wishes to share the
documents in question with her fellow members of the NCHA, not the general
public, in order to enable the membership to make informed decisions as to their
votes for officers and directors as well as to participate in governance by
determining the most reasonable and prudent course for the future of the
association. But we note that Gaughan requested in both the trial court and in
this court that the protective order be set aside in its entirety, which would enable
her to publish all of the information to the press and public as well as her fellow
members. Moreover, the NCHA is a national organization with over 20,000
members. The NCHA acknowledges that other members have a right to review
21
its records upon written request for a proper purpose stated. However, the
Texas statutes make the NCHA the respository of its books and records. If other
members request inspection, the NCHA is entitled to require those members to
agree to abide by its disclosure policy or to enforce that policy as to confidential
information just as it did as to Gaughan. If Gaughan is allowed to disseminate
those records to other members, the NCHA will be unable to track the
dissemination or to require that those other members abide by its Disclosure
Policy as to confidential information to ensure that the confidential information is
protected.
Because Gaughan received records from the NCHA that the public does
not have the right to inspect under article 1396-2.23A, and because her right to
inspect and copy those documents was subject to protection from further
disclosure as confidential, the trial court did not err by entering the protective
order or by declaring that the records produced to Gaughan were subject to
confidential treatment prohibiting her from further disseminating them to others.
Moreover, because it is undisputed that the NCHA produced to Gaughan all
records that she requested, the trial court did not err by declaring that the NCHA
―fully complied with all legal requirements relating to [Gaughan‘s] requests to
review records of the association.‖ We therefore overrule Gaughan‘s first issue. 8
8
Gaughan‘s first issue contends that the trial court erred by declaring that
the NCHA‘s ―financial records‖ are entitled to confidential treatment, but it is clear
from Gaughan‘s briefing on appeal and in the trial court that she contends that
the trial court erred by entering the protective order concerning any of the records
22
B. Designation of Documents as Confidential Under Protective Order
Gaughan argues in her second issue that the trial court erred by declaring
that the NCHA‘s financial records are entitled to confidential treatment under the
law because it did not examine the records in camera to determine whether the
assertion of confidentiality was valid. The NCHA responds that Gaughan did not
follow the terms of the protective order to challenge the designation of any
records as confidential.
After the trial court entered the protective order, the NCHA produced
89,214 pages of documents to Gaughan and designated 36,556 of those pages
as confidential. The protective order provided that ―any time after the delivery of
Confidential Information, counsel for [Gaughan] may challenge the Confidential
designation of all or any portion thereof by providing written notice thereof to
counsel for the NCHA‖ and that if the parties could not reach an agreement,
Gaughan could ―file a motion with the Court to challenge the confidential nature
of all or a portion of the Confidential Information.‖ The trial court‘s judgment
includes a declaration that Gaughan ―took no action pursuant to the terms of the
[Protective] Order to contest the ‗Confidential‘ designation of records and,
therefore, the documents designated as ‗Confidential‘ by the NCHA are therefore
entitled to confidential treatment under the law.‖
she requested from the NCHA. As discussed above, however, Gaughan
requested and received records that a non-member may not inspect.
23
Gaughan argues that the trial court erred by making this declaration
because she gave written notice to the NCHA‘s counsel on March 18, 2009, and
included within her motion for summary judgment a global request for in camera
review of the 36,556 pages of confidential documents. However, the March 18
letter is not in the summary judgment record. While the NCHA‘s March 23 letter
responding to the March 18 letter is in the summary judgment record, the March
23 letter from the NCHA‘s counsel only mentions a general assertion by
Gaughan that she ―has the right to keep and disseminate all information
produced by the NCHA in this matter.‖ The March 23 letter does not mention or
refute any contentions as to why all or part of the documents designated as
confidential by the NCHA should not be designated as confidential, nor does it
suggest that Gaughan sent the March 18 letter for the purpose of complying with
the protective order. Thus, contrary to Gaughan‘s contention, the summary
judgment record does not contradict the trial court‘s declaration that Gaughan
―took no action pursuant to the terms of the [Protective] Order to contest the
‗Confidential‘ designation of records.‖ And because Gaughan did not present
summary judgment evidence that she complied with the protective order, the trial
court did not err by declaring that ―the documents designated as ‗Confidential‘ by
the NCHA are therefore entitled to confidential treatment under the law.‖
Under the unique facts and procedural posture of this case, we hold that
the trial court did not err by declaring that Gaughan ―took no action pursuant to
the terms of the [Protective] Order to contest the ‗Confidential‘ designation of
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records‖ and that ―the documents designated as ‗Confidential‘ by the NCHA are
therefore entitled to confidential treatment under the law.‖ We overrule
Gaughan‘s second issue.9
C. Attorney’s Fees
Gaughan contends in her third issue that the trial court erred by granting
summary judgment for the NCHA‘s attorney‘s fees because fact issues remain as
to whether the fees were reasonable and necessary.
―While reasonableness of an attorney‘s fee award often presents a
question of fact, an ‗affidavit filed by the movant‘s attorney that sets forth his
qualifications, his opinion regarding reasonable attorney‘s fees, and the basis for
his opinion will be sufficient to support summary judgment, if uncontroverted.‘‖
Cammack the Cook, L.L.C. v. Eastburn, 296 S.W.3d 884, 894 (Tex. App.—
Texarkana 2009, pet. denied) (quoting In re Estate of Tyner, 292 S.W.3d 179,
184 (Tex. App.—Tyler 2009, no pet.)); see Bocquet v. Herring, 972 S.W.2d 19,
21 (Tex. 1998) (―In general, ‗[t]he reasonableness of attorney‘s fees . . . is a
question of fact for the jury‘s determination.‘‖) (quoting Trevino v. Am. Nat’l Ins.
9
We do not reach the issues of whether the NCHA met its burden of
establishing confidentiality as to particular categories of records, or whether a
non-member may disseminate to other non-members information received
pursuant to article 1396-2.23A. Those issues are not before us given the unique
procedural posture of this case and Gaughan‘s request that the trial court declare
that all records produced by the NCHA are not confidential despite her receipt of
documents to which a non-member does not have the right to inspect. See
generally Timpte Indus., Inc. v. Gish, 286 S.W.3d 306, 310 (Tex. 2009) (―It is well
settled that a trial court cannot grant a summary judgment motion on grounds not
presented in the motion.‖).
25
Co., 140 Tex. 500, 168 S.W.2d 656, 660 (1943)). Texas courts consider eight
factors when determining the reasonableness of attorney‘s fees:
(1) the time and labor required, the novelty and difficulty of the
questions involved, and the skill required to perform the legal service
properly;
(2) the likelihood . . . that the acceptance of the particular
employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal
services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the
circumstances;
(6) the nature and length of the professional relationship with the
client;
(7) the experience, reputation, and ability of the lawyer or lawyers
performing the services; and
(8) whether the fee is fixed or contingent on results obtained or
uncertainty of collection before the legal services have been
rendered.
Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997)
(citing Tex. Disciplinary R. Prof. Conduct 1.04, reprinted in Tex. Gov‘t Code, tit. 2,
subtit. G app. (State Bar Rules, art. X, § 9) (West 2005)).
The NCHA offered an affidavit by its lead counsel as summary judgment
evidence of the reasonableness and necessity of its attorney‘s fees.10 In the
10
The NCHA attached redacted fee statements and a summary of the rates
and fees charged by the law firm to the affidavit.
26
affidavit, the NCHA‘s counsel outlined the work performed for the NCHA in the
case and, among other things, testified (1) that he had been ―practicing law for
over twenty two years in the State of Texas‖; (2) that he had been involved in
―numerous cases like this one in Tarrant County, Texas‖; (3) that he was ―familiar
with the usual and customary fees for the work done on cases of this type in
Tarrant County, Texas‖; (4) that the fees charged by his firm ranged from $100 to
$300 per hour ―depending upon the person performing these services and their
level of experience‖; (5) that the hourly rates were reasonable and necessary for
the services performed; and (6) that ―based on the work done in the case, the
amount of time spent, the nature of the tasks performed[,] and the amount in
controversy,‖ it was his opinion that ―the reasonable and necessary attorneys‘
fees incurred by the NCHA‖ were $84,243. Gaughan did not file any
controverting summary judgment evidence. Thus, NCHA presented
uncontroverted summary judgment evidence of four of the Arthur Anderson
factors. See id.
Gaughan argues that the trial court erred by granting summary judgment
for the NCHA because the issues of reasonableness and necessity are questions
of fact and because the fees that the NCHA‘s counsel testified were reasonable
and necessary included $5,800 in fees charged before the lawsuit was filed, over
$3,200 for services by an attorney not listed on the pleadings in the case for
―attention to file on pending issues,‖ and ―tens of thousands of dollars in
attorneys‘ fees for the review and provision of the NCHA‘s financial records.‖
27
Gaughan argues that these charges ―represented fact issues that precluded the
entry of summary judgment.‖
First, while the reasonableness and necessity of attorney‘s fees is
generally a question of fact, ―[a]n attorney‘s affidavit can sufficiently establish the
reasonableness of attorney‘s fees for purposes of summary judgment.‖ Basin
Credit Consultants, Inc. v. Obregon, 2 S.W.3d 372, 373 (Tex. App.—San Antonio
1999, pet. denied); see Cammack the Cook, 296 S.W.3d at 894; see also
Bocquet, 972 S.W.2d at 21 (stating that ―in general,‖ reasonableness of
attorney‘s fees is a question of fact). Second, the NCHA sought more than
$84,000 in attorney‘s fees, but the trial court awarded the NCHA $75,000 in
attorney‘s fees. It therefore appears that the trial court did not award the NCHA
the $5,800 in fees charged before the lawsuit or the approximately $3,200 for
services by the attorney for ―attention to file on pending issues.‖ Even if it did,
the applicable statute does not prohibit recovery of fees incurred before the
lawsuit is filed or billed by an attorney not listed on the pleadings. See Tex. Civ.
Prac. & Rem. Code Ann. § 37.009 (West 2008) (―In any proceeding under this
chapter, the court may award costs and reasonable and necessary attorney‘s
fees as are equitable and just.‖). Finally, we held above that, given the unique
factual and procedural context of this case, the NCHA‘s records are entitled to
confidential treatment. Therefore, the services performed by the NCHA‘s
attorneys in reviewing, designating, and producing records to Gaughan were not
28
rendered unreasonable or unnecessary based on Gaughan‘s contention that no
NCHA records are entitled to confidential treatment.
The NCHA‘s summary judgment established its entitlement to summary
judgment as to the amount of attorney‘s fees, and Gaughan‘s arguments are
mere criticisms of the amount sought without contradicting evidence. See Basin
Credit Consultants, 2 S.W.3d at 373, 374 (holding that opposing affidavit did not
create fact issue for summary judgment purposes because it only criticized the
amount of fees sought as excessive and did not ―set forth the affiant‘s
qualifications or the basis for his opinion as to what a reasonable fee would be‖).
We hold that the trial court did not err by granting summary judgment to the
NCHA for $75,000 in attorney‘s fees, and we overrule Gaughan‘s third issue.
V. Conclusion
Having overruled each of Gaughan‘s three issues, we affirm the trial
court‘s judgment.
ANNE GARDNER
JUSTICE
PANEL: GARDNER and MCCOY, JJ.; and WILLIAM BRIGHAM (Senior Justice,
Retired, Sitting by Assignment).
DELIVERED: July 28, 2011
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