Musculoskeletal Imaging Consultants, LLC v. Jar Enters.

Opinion by: Patricia O. Alvarez, Justice

OPINION

From the 166th Judicial District Court, Bexar County, Texas
Trial Court No. 2019-CI-12957
Honorable Cynthia Marie Chapa, Judge Presiding Opinion by: Patricia O. Alvarez, Justice Sitting: Patricia O. Alvarez, Justice Irene Rios, Justice Beth Watkins, Justice REVERSED AND RENDERED

Musculoskeletal Imaging Consultants, Inc. appeals an order granting Premier Medical Imaging (PMI)'s motion to seal numerous court records. Because the trial court sealed court records without a sufficient basis to conclude the requirements of Rule 76a were met, we reverse the trial court's order and render an order denying PMI's motion.

BACKGROUND

This appeal arises out of Musculoskeletal's Rule 202 petition for pre-suit discovery. See TEX. R. CIV. P. 202. According to the Rule 202 petition, Musculoskeletal provides professional radiological services and contracted with PMI to receive PMI's technical services. Musculoskeletal alleged its owner, Dr. Douglas K. Smith, became aware of information raising suspicion about PMI's billing practices. Musculoskeletal sought pre-suit discovery to investigate potential claims of insurance fraud, negligent harm to business reputation, and misappropriation of trade secrets. PMI objected to the petition with an affidavit, and the trial court held a hearing.

At the Rule 202 hearing, Smith testified to many of the facts alleged in the petition. PMI's manager, Ben Emadi, also testified briefly. Emadi stated that PMI keeps a combination of paper and software records for record-keeping and uses billing codes required by Medicaid and Medicare. Emadi also testified he helped prepare the affidavit opposing Musculoskeletal's petition. The affidavit provided an estimate of the expected costs of responding to Musculoskeletal's pre-suit discovery requests based on its employees' hourly wages. The trial court took the matter under advisement and later denied Musculoskeletal's petition.

PMI then filed a Rule 76a motion to seal all prior filings and the Rule 202 hearing. Id. R. 76a. PMI sought to seal the records because (1) of the sensitive nature of unfounded criminal allegations asserted against PMI and its impact on PMI's business operations, (2) Musculoskeletal's petition was an attempted qui tam action that must be filed in camera, and (3) Musculoskeletal's allegations involve PMI's business practices and sensitive proprietary information and would be accessible "for any possible future malcontents" seeking to sue PMI. Musculoskeletal responded that PMI had waived is claims of trade secrets/business practices, and the motion was not supported by sufficient allegations and evidence. After a hearing, the trial court granted the motion to seal. Musculoskeletal timely appealed.

DISCUSSION A. Standard of Review

"We review a trial court's decision on a Rule 76a motion to seal court records for an abuse of discretion." HouseCanary, Inc. v. Title Source, Inc., No. 19-0673, 2021 WL 1711123, at *3 (Tex. Apr. 30, 2021). "A trial court does not abuse its discretion when basing a decision on conflicting evidence." Id. "But failure to analyze or apply the law correctly is an abuse of discretion." Id. "Even if an issue is novel or unsettled, a court may abuse its discretion if its legal decision is incorrect." Id.

B. Texas Rule of Civil Procedure 76a

Under Rule 76a, court records "are presumed to be open to the general public." TEX. R. CIV. P. 76a(1); accord Gen. Tire, Inc. v. Kepple, 970 S.W.2d 520, 523 (Tex. 1998).

[Some] court records . . . may be sealed only upon a showing of all of the following:

(a) a specific, serious and substantial interest which clearly outweighs:

(1) this presumption of openness;
(2) any probable adverse effect that sealing will have upon the general public health or safety;

(b) no less restrictive means than sealing records will adequately and effectively protect the specific interest asserted.

TEX. R. CIV. P. 76a; Kepple, 970 S.W.2d at 523. Rule 76a defines "court records" as most court-filed documents and certain settlement agreements and certain discovery materials not filed of record. TEX. R. CIV. P. 76a(2); Kepple, 970 S.W.2d at 523. "The party seeking to seal the court records must prove the elements of rule 76a by a preponderance of the evidence." Upjohn Co. v. Freeman, 906 S.W.2d 92, 96 (Tex. App.—Dallas 1995, no writ).

"A properly proven trade secret interest may constitute a specific, serious, and substantial interest, which would justify restricting access to the documents in question." Id. "A trade secret may consist of any formula, pattern, device, or compilation of information which is used in one's business and which gives one an opportunity to obtain an advantage over competitors who do not know or use it." Id. "The court may conduct an in camera inspection of the records" or "base its decision on the pleadings, any stipulations of the parties, affidavits and attachments filed by the parties, discovery requests, and oral testimony." Id.

C. No Basis for the Trial Court's Ruling

The trial court's order states that the trial court considered only PMI's motion, the response, and arguments of counsel. The motion contains only general allegations that the Rule 202 filings "concern sensitive proprietary information" and conclusorily recites the standards in Rule 76a. Generally, "[m]otions, arguments of counsel, and bare assertions are not evidence." Fallon v. MD Anderson Physicians Network, 586 S.W.3d 58, 75 (Tex. App.—Houston [1st Dist.] 2019, pet. denied). Additionally, no evidence or other support was presented to the trial court at the hearing on PMI's motion. As the movant, PMI had the burden, by a preponderance of the evidence, to show a "specific, serious and substantial interest" outweighed Rule 76a's other considerations, and that no less restrictive means would be adequate and effective. See TEX. R. APP. P. 76a; Upjohn, 906 S.W.2d at 96. Having presented no evidence and only generalized allegations, PMI failed to satisfy its burden under Rule 76a, and the trial court abused its discretion by concluding otherwise.

D. PMI's Arguments

PMI argues a trial court may seal court records to protect privacy interests. Although this is a true statement, PMI has never specified what information was private, confidential, or proprietary. See TEX. R. CIV. P. 76a (requiring the interest to be "specific"); Kepple, 970 S.W.2d at 523. Much of the information about PMI's business practices was provided voluntarily by PMI's manager, Emadi, in open court during the Rule 202 hearing. See Stroud Oil Props., Inc. v. Henderson, No. 02-03-003-CV, 2003 WL 21404820, at *3 (Tex. App.—Fort Worth June 19, 2003, pet. denied) (mem. op.) (holding privilege was waived by voluntary disclosure in court). PMI further argues Musculoskeletal's claims lacked merit, Musculoskeletal lacked standing, and Musculoskeletal defamed PMI by falsely accusing PMI of criminal conduct. However, at the Rule 202 hearing, Smith testified to many of the facts supporting Musculoskeletal's petition and, other than asserting PMI's billing practices complied with Medicaid and Medicare laws, PMI's manager Emadi did not rebut Smith's testimony. The record does not conclusively establish Musculoskeletal's allegations were false, and even if the allegations were false and the potential claims clearly lacked merit, a pleading's lack of merit, alone, is not a sufficient basis to seal court records. See id. (requiring evidence of a serious and substantial interest outweighing other considerations).

Finally, PMI argues Smith admitted during the Rule 202 hearing that he was seeking to pursue a qui tam action under Texas Human Resources Code section 36.102, and such claims may be filed only in camera to protect the interests of the defendant. See TEX. HUM. RES. CODE ANN. § 36.102(b); Malouf v. State ex rel. Ellis, 461 S.W.3d 641, 643 (Tex. App.—Austin 2015, pet. denied). Initially, "the principal reason for the . . . requirement that a qui tam complaint initially be filed in camera and under seal is to minimize the possibility [of] alert[ing] defendants to a pending . . . criminal investigation," not to protect the defendant. See United States v. L-3 Communications EOTech, Inc., 921 F.3d 11, 27 (2d Cir. 2019). Furthermore, Smith did not make any definitive legal representations about the classifications of his claims because, as he repeatedly stated, he was not an attorney. Musculoskeletal's Rule 202 petition also did not purport to allege any claims, much less a qui tam claim under the Human Resources Code. Instead, Musculoskeletal's Rule 202 petition merely sought to investigate the existence of claims of insurance fraud, negligent harm to business reputation, and misappropriation of trade secrets.

CONCLUSION

The primary basis for PMI's motion was that the allegations cast PMI in a negative light. However, as Musculoskeletal's counsel noted at the hearing on PMI's motion to seal, "No defendant in the state of Texas has ever liked the allegations in a petition against them." This is not a sufficient basis to seal public court records under Rule 76a. We therefore hold the trial court abused its discretion by granting PMI's motion to seal court records without PMI meeting its burden to show Rule 76a's requirements were satisfied. We reverse the trial court's order and render an order denying PMI's motion.

Patricia O. Alvarez, Justice