

Opinion issued August 4, 2011.

In The
Court of
Appeals
For The
First District
of Texas
————————————
NO. 01-11-00166-CV
———————————
In re John S. Beeson, Individually and as Trustee, Relator

 

 

Original Proceeding on Petition for Writ of Mandamus
 

 
O P I N I O N
This is an
original proceeding challenging the trial court’s order requiring Realtor, John
S. Beeson to produce certain tax returns.[1]  We conditionally grant the writ.     
BACKGROUND
In the underlying lawsuit,
real-party-in-interest The Alta Fay and Eugene R. Fant Children’s Trust of 1978
Number One (“Trust”) sued Beeson (the owner of real property abutting property
owned by the Trust), alleging that Beeson has failed to properly remove and
remediate asbestos contamination on his property.[2]  The Trust contends that runoff from Beeson’s
property is contaminating its property, and it seeks an injunction as well as
actual and exemplary damages. 
A.   Request for Production of Tax Returns
The Trust served Beeson with
requests for production that included a request for all of his “filed tax
returns for the past ten (10) years.” 
Beeson responded with the objection that this request “seeks information
that is protected by the Defendant’s privacy rights established by the
constitutions of the State of Texas and the United States of America.”       
The Trust filed a motion to
overrule Beeson’s objection and compel production of the returns.  The Trust argued that Beeson’s privacy
objection “has no merit as the parties have already agreed to the terms of a
Protective Order.”  In its motion, the
Trust also identified several bases for its claim that the returns are relevant,
i.e., Beeson’s tax returns (1) “may shed some light on the interrelationship”
between Beeson, his undisclosed principal, and several related non-party
entities that may have an ownership interest in the real property and/or be
responsible for damages, (2) “may indicate Beeson’s net worth for purposes of
recovering punitive damages,” and (3) “may also demonstrate that Mr. Beeson has
the financial capacity to satisfy the damages sought by the Trust in this case
or whether the Trust will need to pursue the other venturers in these joint
ventures or Beeson’s undisclosed principal.”  According to the Trust, the tax returns
contain relevant information that “has not been produced elsewhere,” and Beeson
has “thwarted the Trust’s attempts” to seek direct discovery from at least two
related entities.  Beeson in turn disputed
that the Trust had carried its burden of demonstrating that the tax returns
were relevant or material as required to overcome the strong privacy interest
Texas law affords personal tax returns.
B.   The Trial Court Orders
 
The trial court entered an order compelling production of Beeson’s tax
return for “tax year 2009 and ensuing tax years.”  The court also entered a protective order
restricting the disclosure of any confidential information disclosed in
discovery, and limiting its use to “solely for the purpose of preparation and
trial of this litigation.”  
C.   This Appeal
Beeson filed a motion to stay the
trial court’s order of production, which we granted, and a Petition for Writ of
Mandamus requesting that we direct the trial court to vacate its order
requiring Beeson to produce his tax returns. 

APPLICABLE LAW
Mandamus relief is available only
to correct a “clear abuse of discretion” when there is no adequate remedy by
appeal.  Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding).
 Clear abuse of discretion occurs when a
trial court “reaches a decision so arbitrary and unreasonable as to amount to a
clear and prejudicial error of law.”  Id. at 839 (citing Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex. 1985)
(orig. proceeding)).  When reviewing
factual issues, the reviewing court may not substitute its judgment for that of
the trial court. Id. at 839–40. Even
if the reviewing court would have decided the issue differently, it cannot
disturb the trial court’s decision unless the decision is shown to be arbitrary
and unreasonable. Id. at 840.
The scope of discovery is generally
within the trial court’s discretion.  Dillard Dept. Stores, Inc. v. Hall, 909
S.W.2d 491, 492 (Tex. 1995).  Discovery
requests, however, must be reasonably tailored to include only matters relevant
to the case.  Texaco, Inc. v. Sanderson, 898 S.W.2d 813, 815 (Tex. 1995).  When the trial court orders discovery
exceeding the scope permitted by the rules of procedure, it abuses its discretion.
 In
re CSX Corp., 124 S.W.3d 149, 152 (Tex. 2003) (orig. proceeding).  Mandamus relief is proper for discovery that
is “well outside the proper bounds.”  In re Am. Optical Corp., 988 S.W.2d 711,
713 (Tex. 1998) (orig. proceeding).  
Parties are entitled to seek
discovery “regarding any matter that is not privileged and is relevant to the
subject matter of the pending action.”  Tex. R. Civ. P. 192.3(a).  Information is relevant if it tends to make
the existence of a fact that is of consequence to the determination of the
action more or less probable than it would be without the information.  Tex. R.
Evid. 401.  
“The general rule in financial
records production cases is that the burden on the discovery of financial
records lies with the party seeking to prevent production.” In re Brewer Leasing, Inc., 255 S.W.3d
708, 712 (Tex. App.—Houston [1st Dist.] 2008, orig. proceeding [mand. denied]).  In other words, any party who seeks to
exclude relevant documents, records, or other matters from the discovery
process has the affirmative duty to plead and prove that a particular privilege
applies.   Peeples v. Honorable Fourth Supreme Judicial Dist., 701 S.W.2d 635,
637 (Tex. 1985).  When net worth is at
issue because the plaintiff seeks exemplary damages, the trial court does not
abuse its discretion by ordering the production of financial documents that are
relevant and material to prove net worth.  See
Lunsford v. Morris, 746 S.W.2d 471, 473 (Tex. 1988) (orig. proceeding), overruled on other grounds by Walker v.
Packer, 827 S.W.2d 833, 842 (Tex. 1992) (orig. proceeding); In re Garth, 214 S.W.3d 190, 192–93 (Tex. App.—Beaumont 2007, orig. proceeding); Delgado
v. Kitzman, 793 S.W.2d 332, 333 (Tex. App.—Houston [1st Dist.] 1990, orig. proceeding); Miller v. O’Neill, 775 S.W.2d 56, 59 (Tex. App.—Houston [1st Dist.] 1989, orig. proceeding).  But it may be an abuse of discretion to order
the production of financial records “that would not necessarily evidence” net
worth. Garth, 214 S.W.3d at 194.
Tax returns are treated differently
than other types of financial records, as evidenced by the supreme court’s expressed
“reluctance to allow uncontrolled and unnecessary discovery of federal income
tax returns.”  Hall v. Lawlis, 907 S.W.2d 493, 494–95 (Tex. 1995) (citing Ramirez, 824 S.W.2d at 559). This is
because federal income tax returns are considered private and the protection of
that privacy is of constitutional importance.  Maresca
v. Marks, 362 S.W.2d 299, 301 (Tex. 1962) (holding that trial court abused
discretion by ordering entire income tax returns for individuals and
corporations “without separation of the relevant and material parts from the
irrelevant and immaterial parts”).  The
sacrifice of such privacy should be “kept to the minimum, and this requires
scrupulous limitation of discovery to information furthering justice between
the parties which, in turn, can only be information of relevancy and
materiality to the matters in controversy.”  Id.  
Accordingly—unlike when other types of financial records
are sought— after a resisting party objects
to the production of tax returns, the burden shifts to the party seeking to
obtain the documents to show that the tax returns are both relevant and
material to the issues in the case.  El Centro del Barrio, Inc. v. Barlow,
894 S.W.2d 775, 779 (Tex. App.—San Antonio
1994, no writ); see also Hall, 907
S.W.2d at 494 (“Income tax returns are discoverable to the extent they are
relevant and material to the issues presented in the lawsuit.”)  Because “privacy once broken . . . cannot be
retrieved,” mandamus relief is proper when a trial court orders the production
of tax returns that are immaterial or irrelevant to the cause in which
discovery was sought.  Maresca, 362 S.W.2d at 301.
“Federal income tax returns are not
material if the same information can be obtained from another source.”  In re Sullivan,
214 S.W.3d 622, 624-25 (Tex. App.—Austin 2006, orig. proceeding); see also Garth, 214 S.W.3d at 194 (trial
court abuses discretion by requiring production of tax returns when trial court’s
order also requires production of financial statements regarding net worth of
party); Chamberlain v. Cherry, 818
S.W.2d 201, 207 (Tex. App.—Amarillo 1991, no writ) (holding that trial court
did not abuse discretion in refusing to allow discovery of income tax returns
because party seeking to obtain tax returns did not attempt to obtain other
evidence of net worth, such as financial statements, and made no showing that
tax returns were relevant to determination of party’s financial position); Wal–Mart Stores, Inc. v. Alexander, 868
S.W.2d 322, 331 (Tex. 1993) (Gonzalez, J. concurring) (“[T]rial courts should
not allow discovery of private financial records, such as tax returns, when
there are other adequate methods to ascertain net worth . . . .”).  Moreover, tax returns may not be discovered
when the information sought is duplicative of information already provided.  Ramirez,
824 S.W.2d at 559.  
In sum, for the Trust to properly prevail
in its request to obtain Beeson’s tax returns, it must carry its burden to show
that the tax returns it seeks are relevant and would not duplicate information
already provided or available through other, less-intrusive means. See Alexander, 868 S.W.2d at 331; Ramirez, 824 S.W.2d at 559; Chamberlain, 818 S.W.2d at 207.
Analysis
The Trust argues, as a threshold
matter, that Beeson’s objection that producing his tax returns would violate
his right to privacy is insufficient to shift the burden to the Trust to show
the relevance and materiality of the returns. 
Accordingly, the Trust asserts, the Court’s mandamus review must be
limited to the question of whether the protective order entered by the trial
court sufficiently protects Beeson’s privacy concerns without reference to
whether the tax returns are otherwise discoverable.  In response, Beeson argues that his privacy
objection implicitly encompassed both relevance and materiality, and operated
to shift the burden to the Trust.   
We agree with Beeson.  As Beeson noted, the Trust has not cited any
authority holding that relevancy and materiality objections must be made
separate and apart from privacy.  More
importantly, courts consistently recognize these issues as being necessarily
intertwined.  E.g., In re United Servs.
Auto. Ass’n, 76 S.W.3d 112, 115 (Tex. App.—San Antonio 2002, no pet.)
(“When a party has properly objected to a request for production based on
privacy rights, it is the burden of the party seeking production to show the
information sought is material, relevant and necessary.”).  We thus hold that the
issues of relevance and materiality were implicitly subsumed within Beeson’s
objection that the production of his federal tax returns would violate his
constitutional right to privacy.  
“Once an objection is asserted, the
party seeking discovery of the tax returns has the burden of showing relevance
and materiality.”  In re Sullivan, 214 S.W.3d at 623–24 (shifting burden where party resisting discovery of tax returns
objected that information sought was “protected by Defendant’s rights of privacy,”
“duplicative of information sought in other Requests,” and that party seeking
documents failed to demonstrate it was “unable to obtain the requested
information through less intrusive means”).  
Assuming that Beeson’s tax returns
are relevant, we conclude that the Trust has failed to meet its burden of
demonstrating that Beeson’s tax returns are “material,” i.e., not duplicative
of other produced information and not available through other channels.  The Trust makes the conclusory assertion that
it “tried other, less intrusive methods to obtain” the information it seeks.  An examination of the Trust’s allegations, however,
demonstrates that its actual complaints are that (1) it does not like the form
in which Beeson has provided information, and (2) it believes his tax returns
may demonstrate that his other discovery responses are not true.  
For example, the Trust protests
that the deed to Beeson’s property reflects that he holds title as “Beeson, as
Trustee,” and asserts that Beeson has “hidden the identity of any trust or of
any principal.”  Beeson actually
testified in his deposition, however, that there is no trust or undisclosed
principal; he is the sole individual owner of the property.  Thus, the Trust’s complaint is not that
Beeson has refused to disclose a trust principal, but rather that it does not
believe Beeson’s testimony that there is not an undisclosed principal. 
The Trust next points out that
various asbestos remediation documents produced in discovery reveal that
different entities either requested quotes or contracted for remediation work
on Beeson’s property.  Specifically,
“Beeson Properties” requested quotes, “Sharpstown Venture” paid for remediation
work, and “Hillcroft Venture” was designated as the generator of hazardous
material on some of the manifests for waste disposal and was listed as the
property owner on a Demolition Renovation Notification Form filed with the
State.  According to the Trust, these
documents demonstrate that “Beeson clearly has not acted alone, but is less than
forthright in disclosing these relationships and their correlation to each
other, when other forms of discovery are used.”    
Beeson objected to discovery
directed at these entities because they are not parties, and testified in his
deposition that Hillcroft Venture and Sharpstown Venture—despite their different names—are one and the same entity.  He also testified that these entities only
share two different names because of a paperwork error, and that he is
essentially the sole owner of both, with his son Lee Beeson—the other owner—holding only a nominal interest.[3]  The Trust’s lawyer did not ask Beeson any
questions during the deposition about “Beeson Properties.”  Again, Beeson has provided the information
the Trust seeks about the “interrelationships” between various non-party
entities; the Trust simply distrusts the information provided.
The Trust’s position is similar to an
argument that the Austin Court of Appeals rejected in In re Sullivan, a condemnation case in which the State sought a property
owner’s tax returns.  214 S.W.3d at
623.  In that case, the income generated
by the property’s use as a recreational vehicle park was relevant to the
property’s condemnation value.  The State
contended that the financial statements reflecting income information provided
by the property owner “were inconsistent with the financial data she
subsequently disclosed in discovery.” Id.
at 624.  The State thus reasoned that the
property owner’s income tax returns were “relevant and material because the information
in the tax returns presumably represents the definitive account of the
operation income and expenses associated with the property as an R.V. park, in
contract to the inconsistent information . . . already produced.”  Id.
(quotations omitted).  Assuming without
deciding the relevance of the tax returns, the Austin Court of Appeals
disagreed that the returns were material and held the trial court’s concluding
otherwise to be an abuse of discretion.  The
court noted that, in support
of its materiality argument, the State
did “little more than express frustration” with alleged inconsistencies in the
financial information produced.  Id. 
And the court deemed it significant that the State “did not attempt to
use (or explain why it could not use) interrogatories, depositions, or any
other discovery device to follow-up its initial discovery request or further
explore the basis” for the inconsistencies. 
Id.  
Here, the Trust has followed up and received explanations
for most of what it characterizes as inconsistencies in Beeson’s discovery production.  And it has failed to allege, much less
establish, that any remaining questions cannot be resolved through less
intrusive means.  The Trust’s suspicion
that “Beeson’s various roles [are] apparently aimed at hiding the character of
his involvement with” hazardous asbestos is not enough to support the trial
court’s conclusion that Beeson’s tax returns are material in this case.            
Finally, the Trust argued to the
trial court that Beeson’s tax returns were necessary to demonstrate net worth
and to determining whether Beeson has sufficient financial resources to satisfy
any judgment.  This Court has held that
“if there are other adequate methods to ascertain net worth, the trial court
should not allow discovery of tax returns.” 
In re Brewer Leasing, 255
S.W.3d at 714.  The Trust has not alleged,
much less established, that the net worth information it purportedly seeks from
Beeson’s tax returns has not been produced in other forms and cannot be
discovered through other forms of discovery. 
Moreover, while we have doubts that a desire for pre-judgment discovery
to determine whether a defendant has sufficient resources to satisfy a judgment
could ever satisfy the relevance threshold for the discovery of tax returns, this
argument suffers the same materiality flaw as the Trust’s other arguments
because the Trust has not alleged or demonstrated that information cannot be
gleaned elsewhere.
In sum, a party’s distrust, without
more, is not sufficient to support compelling the production of tax returns
containing information already provided or available in other forms.  Thus, assuming the relevance of Beeson’s tax
returns, we hold that the returns are not material because the Trust has not
carried its burden of demonstrating that the information it seeks has not
already been provided in different form or that it is not available through
less intrusive means.  
CONCLUSION
We conditionally grant Beeson’s
petition for writ of mandamus and direct the trial court to vacate its order
requiring Beeson to produce personal income tax returns.  The writ will issue only if the court fails
to comply.  
 
 
 
                                                                   Sherry
Radack
                                                                   Chief
Justice 
 
Panel
consists of Chief Justice Radack and Justices Sharp and Brown.
 




[1]
          The underlying case is The Alta Fay and Eugene R. Fant Children’s
Trust of 1978 Number One v. John S. Beeson, Individually and as Trustee, and
CenterPoint Energy Houston Electric, LLC, No 2010-29072, the Hon. Dan Hinde
presiding.


[2]
          The Trust also sued CenterPoint
Energy Houston Electric, which owns an adjacent drainage ditch.  These claims against CenterPoint, however,
are not relevant to the issues in this original proceeding.  


[3]
          The exhibits to the Beeson’s
deposition are not in the records, but the transcript reflects that several
d/b/a documents explaining the relationship between Beeson, Hillcroft Venture
and Sharpstown Venture were testified about and marked as exhibits. 


