In a case closely observed by First Amendment advocates, the Texas Supreme Court ruled Friday that a San Antonio trial court erred when it agreed to seal from public scrutiny exhibits that had been subject to trade secret protections but were revealed in open court.
Their unanimously concurred judgment in HouseCanary v. Title Source, in effect, keeps in play a 30-year-old procedural rule that presumes court records are open to the public — a matter of considerable concern to public interest and media groups when the court first agreed to review the case.
The issue concerned apparent conflicts between the Texas Uniform Trade Secrets Act and Rule 76a under the Texas Rules of Civil Procedure, which requires public notice of a party’s request to seal court records. Rule 76a was adopted by the Supreme Court in 1990 in response to a legislative directive and TUTSA, which became law in 2013, directs trial courts to take reasonable measures to protect alleged trade secrets at any stage of litigation.
In their 22-page opinion, written by Justice Brett Busby, the court said the presumptions of Rule 76a and TUTSA may overlap in purpose, but the need to protect trade secrets does not overrule the public purposes of Rule 76a. Where TUTSA prescribes a need to protect trade secrets, Rule 76a provides the procedures that would do so in the context of the public’s need for information.
“The public’s right of access to judicial proceedings is a fundamental element of the rule of law because monitoring the exercise of judicial authority helps maintain the integrity and legitimacy of an independent judicial branch,” Busby writes.
“Nothing about TUTSA’s presumption in favor of protective orders signals that the Legislature wanted courts to abandon this commitment and their procedures any time a trade secret is alleged.”
The request to seal the trial exhibits grew evolved from a $706 million jury verdict won by HouseCanary in a trade secrets dispute with Title Source; both are software and digital platform developers in the real estate valuation space. HouseCanary accused Title Source — now known as Amrock and affiliated with Quicken Loans — of stealing secrets shared as part of a failed operational agreement.
During the trial the two sides had entered a complex arrangement to protect various trade secrets — primarily algorithms, software and data related to the valuation of real estate.
After the trial, HouseCanary asked the trial court to seal 30 exhibits from the public record under Rule 76a, which requires public notice. Title Source objected and so did two media organizations: the Houston Forward Times and the Reporters Committee for Freedom of the Press. They argued that 29 of the 30 exhibits had been discussed in open court — often by HouseCanary —and that the only one not already in evidence duplicated another that had been.
HouseCanary asked the court to reconsider regarding eight of the exhibits — this time under TUTSA — arguing that the TUTSA protection of trade secrets presumes the records could and should be sealed, despite the presumptions of Rule 76a. This time the trial court listened, sealing eight of the exhibits as well as six others HouseCanary hadn’t requested.
But SCOTX rejected that argument, pointing out that the trial court was barred by Rule 76a(7) from reconsidering its earlier judgment without a substantial change of circumstance, something HouseCanary had never alleged.
Perhaps they should have, Busby declared. TUTSA allows the sealing of records but sets no standards for doing so. Rule 76a prescribes those standards, and by basing its ruling solely on TUTSA the trial court had abused its discretion.
“TUTSA’s presumption favoring protective orders may increase the likelihood of a motion to seal being granted in the first place, but nothing in TUTSA promises a quick second bite at the apple in the trial court,” he wrote.
Despite the unanimity in judgement, there was an element of discord. In a concurring opinion Chief Justice Nathan Hecht said his colleagues were too quick to dismiss the obvious dissonance between their ruling and the 2018 jury verdict won by HouseCanary.
“As the Court sees it, while Title Source may have no right to HouseCanary’s trade secrets, Title Source’s wrongdoing might have given the public a right to those secrets,” Hecht writes, joined by Justice Jane Bland. “This outcome is contrary to both the Texas Uniform Trade Secrets Act and common sense.”
For Chip Babcock of Jackson Walker, who argued the case for the Reporters Committee for Freedom of the Press, this week’s ruling was a clear victory for the presumptions of public openness contained in Rule 76a.
“I thought Justice Busby’s opinion was a thorough and thoughtful treatment of the issue,” he said. But the concurring opinion, he said, showed that there had been something to worry about.
“We were worried that the whole framework of Rule 76a would be scrapped,” Babcock said. “And that’s pretty much what the concurring opinion says.”
The case is HouseCanary fka Canary Analytics v. Title Source, Reporters Committee for Freedom of the Press and Houston Forward Times No. 19-0673.