in Re: Stanley J. Williams, Jr. and Dena Williams ( 2010 )

NUMBER 13-10-00277-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI - EDINBURG
________________________________________________________
IN RE: STANLEY J. WILLIAMS, JR. AND DENA WILLIAMS
____________________________________________________________
On Petition for Writ of Mandamus.
____________________________________________________________
OPINION
Before Chief Justice Valdez and Justices Benavides and Vela
Opinion by Chief Justice Valdez
Relators, Stanley J. Williams Jr. (“Jay”) and Dena Williams, seek a writ of
mandamus directing the Honorable Jaime Palacios, Judge of the County Court at Law
Number 2 of Hidalgo County, Texas, to vacate his orders: (1) overruling relators’
objections to discovery requests propounded by real party in interest, G.J. Palmer Jr.; (2)
denying relators’ motion for reconsideration; and (3) requiring relators to answer Palmer’s
discovery requests by May 10, 2010. We conditionally grant the writ, in part, and deny the
writ in part.1
I. BACKGROUND
The dispute in this matter pertains to a challenge filed by Palmer regarding the net
worth of SJW Property Commerce, Inc. (“SJW”) and Property Commerce Development
Company (“PCDC”), companies in which Jay serves as president. On April 26, 2007, a jury
concluded that SJW and PCDC had committed various business torts, including tortious
interference with existing contracts, breach of fiduciary duty, and fraud, against Palmer
involving the development of property for retail purposes at the northeast corner of 10th
Street and Trenton in McAllen, Texas. See SJW Prop. Commerce, Inc. v. Sw. Pinnacle
Props., Inc., 314 S.W.3d 166, 173-79 (Tex. App.–Corpus Christi 2010, no pet.). The jury
assessed actual and exemplary damages against SJW and PCDC exceeding $3 million,
which included $709,587 in compensatory damages. Id. at 172. On February 7, 2008, the
trial court entered its final judgment adopting the jury’s findings. Id. at 182-83.
Shortly after judgment, SJW and PCDC filed affidavits of net worth and cash
deposits to supersede the judgment. In particular, SJW deposited $10,000 into the trial
court’s registry, asserting that this amount was greater than or equal to fifty percent of
SJW’s net worth as of March 10, 2008. See TEX . R. APP. P. 24.2(a)(1). In support of its
net worth assertion, SJW included audited financial statements and an affidavit executed
by Larry Reader, a certified public accountant licensed in Texas, who averred that SJW’s
1
On May 10, 2010, m ovants, Jay and Dena W illiam s, as well as co-m ovants, SJW Property
Com m erce, Inc. and Property Com m erce Developm ent Com pany, Inc., filed a rule 24.4 m otion in the cause
num ber for the underlying causes of action, appellate cause num ber 13-08-00268-CV, asserting argum ents
that are virtually identical to those m ade in this m andam us. Because we address relators’ com plaints in this
original proceeding, we DENY relators’ rule 24.4 m otion. See In re Sm ith, 192 S.W .3d 564, 567-68 (Tex.
2006) (orig. proceeding) (per curiam ) (analyzing rule 24.4 m otions challenging net worth affidavits and the
sufficiency of cash deposits m ade in lieu of supersedeas bond as petitions for writ of m andam us); see also
Isern v. Ninth Court of Appeals, 925 S.W .2d 604, 605-07 (Tex. 1996) (orig. proceeding) (reviewing by
m andam us a trial court’s order perm itting the judgm ent debtor to post alternate security to supersede
execution of the judgm ent).
2
net worth was $15,498. With respect to PCDC, Reader averred that PCDC’s net worth
was $2,878. In any event, PCDC deposited $5,000 into the trial court’s registry.
On March 14, 2008, Palmer filed a contest pursuant to Texas Rule of Appellate
Procedure 24.2(c)(2), challenging SJW and PCDC’s affidavits of net worth. See id. at R.
24.2(c)(2). Palmer believed that the net worth of both SJW and PCDC was once much
higher than described in the affidavits and that many of the assets previously owned by
SJW and PCDC had been transferred to other entities to avoid paying the judgment.
Subsequently, Palmer propounded discovery requests on various directors, officers, and
employees of SJW and PCDC. On January 27, 2009, Palmer served Jay with post-
judgment written discovery.2 Jay objected to Palmer’s discovery request and filed a motion
for protection and a motion to strike. In this filing, Jay asserted that Palmer’s discovery
request invaded his “personal, constitutional, and property rights” and was, among other
things, overly broad, harassing, and irrelevant, especially considering that Jay was not a
named party to the underlying lawsuit.
In response to Jay’s motions, Palmer filed a motion to compel and a motion for
injunctive relief. In his motion to compel, Palmer contended that Jay failed to provide
numerous categories of documents, including, among other things, “[t]he name and
address of each business in which Jay Williams owns an interest that is involved in real
estate development, leasing or sales”; “[a]ll schedules showing allocation of expenses from
Property Commerce Management Company to SJW Property Commerce”; broker
2
W ithin his discovery requests to Jay, Palm er requested the production of Jay’s incom e tax returns
as well as those of his wife, Dena. Palm er also requested “canceled checks, bank statem ents, check-stub
records, and other banking records” pertaining to Jay and Dena and any interests that Jay and Dena m ay
have in real or personal property. Based on the record before us, these appear to be the only references
m ade to Dena. Dena was first nam ed as a party to this m atter in this petition for writ of m andam us. In any
event, both parties focus their argum ents in this m atter on Jay’s involvem ent rather than Dena’s. And, none
of Palm er’s discovery requests specifically ask for inform ation from Dena herself; instead, Palm er seeks
inform ation about assets in which Jay has an interest, including those held jointly by Jay and Dena.
3
compensation agreements with Clay Trozzo, Chad Moss, and Jay Williams, all brokers for
SJW 3; and “Property Commerce Management Company bank statements, income
statements, balance sheets, cash flow statements, Articles of Incorporation, service
agreements, corporate documents, tax returns, list of employees, contractors, brokers,
agents and service providers, and a description of business activities 2003 to current.”4
In his motion for injunctive relief, Palmer alleged that, shortly after the jury rendered its
verdict, SJW and PCDC, in May and June 2007, created several new sister corporations
(Property Commerce JW, Inc.; Property Commerce CT, Inc.; Property Commerce
Brokerage, Inc.; Property Commerce Leasing, Inc.; and Property Commerce Williams, Inc.)
that operate under the trade name of “Property Commerce.” Palmer further alleged that
these new companies were created so that SJW and PCDC could transfer assets to avoid
paying the February 7, 2008 final judgment. Palmer’s allegation was premised on SJW
and PCDC’s representation that they were “very near bankruptcy” and their alleged refusal
to provide accurate information regarding the financial health of the companies.
On July 22, 2009, the trial court conducted a hearing on Palmer’s motions. After
hearing arguments, the trial court granted Palmer’s motion to compel and overruled Jay’s
objections to Palmer’s discovery requests. Jay was ordered to produce “full and complete
answers to [Palmer’s discovery] requests without objection and shall produce all
documents requested within twenty . . . days” of October 30, 2009, the date the trial court
3
As noted in a previous opinion related to this m atter, Trozzo and Jay are brothers-in-law and work
very closely together in the business of real estate developm ent. See SJW Prop. Commerce, Inc. v. Sw.
Pinnacle Props., Inc., 314 S.W .3d 172, 173 (Tex. App.–Corpus Christi 2010, no pet.). Trozzo, in particular,
worked as a broker for SJW in the underlying m atter involving the developm ent of real estate at the
intersection of 10th Street and Trenton in McAllen. Id. at 173-79. Jay, on the other hand, “owns and controls
SJW and PCDC.” Id. at 173 n.1.
4
Although this m atter involves num erous com panies, it appears from the record before us that
Property Com m erce Managem ent Com pany is a com pany related to SJW and PCDC.
4
signed the order. The trial court also ordered Jay to produce bank statements for an “S.
Jay Williams Investments” account and overruled Jay’s objections to Palmer’s first set of
post-judgment interrogatories.
In response to the trial court’s October 30, 2009 order, SJW and PCDC filed a
motion for reconsideration arguing, among other things, that: (1) Palmer’s net worth
discovery was premature and improper because there had not been an alter ego finding
in the matter; (2) there was no evidence that Jay is the alter ego of SJW or PCDC; (3)
more than 6,000 pages of documents had already been produced, which accurately
demonstrated the cash flows between SJW, PCDC, and other companies; and (4) the
order was unreasonable because it would take more than twenty days to produce the
documents requested by Palmer.
The trial court conducted a hearing on SJW and PCDC’s motion for reconsideration.
On April 26, 2010, the trial court signed an order denying SJW and PCDC’s motion for
reconsideration and ordering SJW and PCDC to comply with the October 30, 2009 order
by May 10, 2010.
On May 10, 2010, Jay and Dena Williams filed a petition for writ of mandamus
accompanied by an emergency motion requesting that this Court stay the trial court’s
October 30, 2009 and April 26, 2010 orders. We granted the Williamses’ emergency
motion and stayed the enforcement of the trial court’s orders. We also requested that
Palmer file a response to the Williamses’ petition. Palmer filed a response to the
Williamses’ petition, and the Williamses filed a reply to Palmer’s response.
II. STANDARD OF REVIEW
Mandamus is an “extraordinary” remedy. In re Sw. Bell Tel. Co., L.P., 235 S.W.3d
5
619, 623 (Tex. 2007) (orig. proceeding); see In re Team Rocket, L.P., 256 S.W.3d 257,
259 (Tex. 2008) (orig. proceeding). In order to obtain mandamus relief, the relator must
show that the trial court clearly abused its discretion and that the relator has no adequate
remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. 2004)
(orig. proceeding); see In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, 462 (Tex. 2008)
(orig. proceeding). A trial court abuses its discretion if it reaches a decision so arbitrary
and unreasonable as to constitute a clear and prejudicial error of law, or if it clearly fails to
correctly analyze or apply the law. In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379,
382 (Tex. 2005) (orig. proceeding) (per curiam); Walker v. Packer, 827 S.W.2d 833, 839
(Tex. 1992) (orig. proceeding). To satisfy the clear abuse of discretion standard, the relator
must show that the trial court could “‘reasonably have reached only one decision.’” Liberty
Nat’l Fire Ins. Co. v. Akin, 927 S.W.2d 627, 630 (Tex. 1996) (quoting Walker, 827 S.W.2d
at 840).
Historically, mandamus was treated as an extraordinary writ that would issue “only
in situations involving manifest and urgent necessity and not for grievances that may be
addressed by other remedies.” Walker, 827 S.W.2d at 840. Now, however, in some
extraordinary circumstances, whether a clear abuse of discretion can be adequately
remedied by appeal depends on a careful analysis of the costs and benefits of interlocutory
review. In re McAllen Med. Ctr., Inc., 275 S.W.3d at 462. “An appellate remedy is
‘adequate’ when any benefits to mandamus review are outweighed by the detriments.” In
re Prudential Ins. Co. of Am., 148 S.W.3d at 136. The supreme court further stated that:
Mandamus review of significant rulings in exceptional cases may be
essential to preserve important substantive and procedural rights from
impairment or loss, allow the appellate courts to give needed and helpful
direction to the law that would otherwise prove elusive in appeals from final
judgments, and spare private parties and the public the time and money
6
utterly wasted enduring eventual reversal of improperly conducted
proceedings.
Id.
III. APPLICABLE LAW
A. Texas Rule of Appellate Procedure 24
Pursuant to rule 24.1 of the rules of appellate procedure, a judgment debtor may
supersede a judgment or, in other words, suspend enforcement of a judgment by (1) filing
with the trial court clerk a written agreement with the judgment creditor for suspending
enforcement of the judgment; (2) filing with the trial court clerk a good and sufficient bond;
(3) making a deposit with the trial court clerk in lieu of a bond; or (4) providing alternate
security ordered by the trial court. See TEX . R. APP. P. 24.1; see also Tex. Custom Pools,
Inc. v. Clayton, 293 S.W.3d 299, 305 (Tex. App.–El Paso 2009, no pet.). When the
judgment is for money, as is the case here, the amount of the bond, deposit or security
must equal the sum of the compensatory damages awarded in the judgment, interest for
the estimate duration of the appeal, and costs awarded in the judgment. TEX . R. APP. P.
24.2(a)(1); see TEX . CIV. PRAC . & REM . CODE ANN . § 52.006(a) (Vernon 2008). However,
the amount must not exceed the lesser of fifty percent of the judgment debtor’s current net
worth or twenty-five million dollars. See TEX . R. APP. P. 24.1(a)(1); TEX . CIV. PRAC . & REM .
CODE ANN . § 52.006(b); see also Clayton, 293 S.W.3d at 305.
Texas Rule of Appellate Procedure 24.2(c) sets forth the procedure for determining
a party’s net worth. TEX . R. APP. P. 24.2(c). A judgment debtor who provides a bond,
deposit, or security under rule 24.2(a)(1)(A) in an amount based on the debtor’s net worth
must simultaneously file an affidavit that states the debtor’s net worth and states complete,
detailed information concerning the debtor’s assets and liabilities from which net worth can
7
be ascertained. TEX . R. APP. P. 24.2(c)(1); see Clayton, 293 S.W.3d at 305. The affidavit
is prima facie evidence of the judgment debtor’s net worth. TEX . R. APP. P. 24.2(c)(1).
A judgment creditor may file a contest to the judgment debtor’s affidavit of net worth.
Id. at R. 24.2(c)(2). Net worth is calculated as the difference between the party’s total
assets and total liabilities, as determined by generally accepted accounting principles
(“GAAP”).5 Clayton, 293 S.W.3d at 305 (citing G.M. Houser, Inc. v. Rodgers, 204 S.W.3d
836, 840 (Tex. App.–Dallas 2006, no pet.); Ramco Oil & Gas, Ltd. v. Anglo Dutch (Tenge)
L.L.C., 171 S.W.3d 905, 915 (Tex. App.–Houston [14th Dist.] 2005, no pet.)). “When a
judgment creditor files a contest to the judgment debtor’s affidavit of net worth, the trial
court must hold a hearing.” In re Smith, 192 S.W.3d 564, 568 (Tex. 2006) (orig.
proceeding) (per curiam). At the hearing on the judgment creditor’s contest, the judgment
debtor has the burden of proving net worth. TEX . R. APP. P. 24.2(c)(3); see Clayton, 293
S.W.3d at 305. The trial court is required to issue an order that states the debtor’s net
worth and states with particularity the factual basis for that determination. TEX . R. APP. P.
24.2(c)(3); see In re Smith, 192 S.W.3d at 568; Clayton, 293 S.W.3d at 305. The trial court
is also authorized to enjoin the judgment debtor from “dissipating or transferring assets to
avoid satisfaction of the judgment.” Clayton, 293 S.W.3d at 305 (citing TEX . R. APP. P.
24.2(d)). On the motion of a party, an appellate court may review the sufficiency or
excessiveness of the amount of security. Id. (citing TEX . R. APP. P. 24.4(a); TEX . CIV. PRAC .
& REM . CODE ANN . § 52.006(d); G.M. Houser Inc., 204 S.W.3d at 840). Here, the dispute
pertains to discovery regarding Palmer’s challenges to SJW and PCDC’s net worth
5
The Houston Court of Appeals further clarified, in Enviropower LLC v. Bear, Stearns & Co., Inc., that
“the correct m easure of a com pany’s net worth for the purpose of setting a supersedeas bond under section
52.006 of the Texas Civil Practice and Rem edies Code and Rule 24 of the Texas Rules of Appellate
Procedure is the com pany’s current assets m inus current liabilities at the tim e the bond is set.” 265 S.W .3d
1, 5 (Tex. App.–Houston [1st Dist.] 2008, pet. denied).
8
affidavits and the sufficiency of SJW and PCDC’s cash deposits in lieu of supersedeas
bond.
B. Discovery
Ordinarily, the scope of discovery is within the discretion of the trial court. Dillard
Dept. Stores, Inc. v. Hall, 909 S.W.2d 491, 492 (Tex. 1995) (orig. proceeding) (per curiam).
A trial court’s ruling that requires production of information beyond what our procedural
rules permit is an abuse of discretion. In re Dana Corp., 138 S.W.3d 298, 301 (Tex. 2004)
(orig. proceeding) (per curiam) (citing Texaco, Inc. v. Sanderson, 898 S.W.2d 813, 815
(Tex. 1995) (orig. proceeding) (per curiam)); see Hall, 909 S.W.2d at 492 (providing that
the scope of discovery is largely within the discretion of the trial court); see also In re
Brewer Leasing, Inc., 255 S.W.3d 708, 711 (Tex. App.–Houston [1st Dist.] 2008, orig.
proceeding) (citing In re CSX Corp., 124 S.W.3d 149, 152 (Tex. 2003) (orig. proceeding)
(per curiam)). If an appellate court cannot remedy a trial court’s discovery error, then an
adequate appellate remedy does not exist. In re Dana Corp., 138 S.W.3d at 301 (citing
Texaco, 898 S.W.2d at 815; Walker, 827 S.W.2d at 839). Thus, “[m]andamus review is
proper for discovery that is ‘well outside the proper bounds.’” In re Brewer Leasing, Inc.,
255 S.W.3d at 711 (citing In re Am. Optical Corp., 988 S.W.2d 711, 713 (Tex. 1998) (orig.
proceeding) (per curiam)).
Discovery is generally permitted of any unprivileged information relevant to the
subject of a lawsuit, whether it relates to a claim or defense of the parties. See TEX . R. CIV.
P. 192.3(a); see also In re Am. Optical Corp., 988 S.W.2d at 713 (providing that although
the scope of discovery is broad, requests must show a reasonable expectation of obtaining
information that will aid the dispute’s resolution and may not be used as a fishing
expedition). As long as the information sought appears reasonably calculated to lead to
9
the discovery of admissible evidence, it is not a ground for objection that the information
sought will be inadmissible at trial. See TEX . R. CIV. P. 192.3(a) (providing that the ambit
of discovery is broad and permits parties to seek discovery “regarding any matter that is
not privileged and is relevant to the subject matter of the pending action”), (b) (“A party may
obtain discovery of the existence, description, nature, custody, condition, location, and
contents of documents . . . that constitute or contain matters relevant to the subject matter
of the action.”); see also In re Spence, No. 2-09-392-CV, 2010 Tex. App. LEXIS 4884, at
*6 (Tex. App.–Fort Worth June 21, 2010, orig. proceeding) (“The rules governing discovery
do not require as a prerequisite to discovery that the information sought be admissible
evidence; it is enough that the information appears reasonably calculated to lead to the
discovery of admissible evidence.”). Information is relevant if it tends to make the
existence of 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; see In re Brewer
Leasing, Inc., 255 S.W.3d at 712.
When a judgment debtor is uncooperative with reasonable discovery concerning the
judgment debtor’s net worth, the trial court may take appropriate steps, such as compelling
responses and issuing sanctions, to ensure that discovery is completed before the hearing
on the judgment creditor’s contest. In re Smith, 192 S.W.3d at 579 (citing Arndt v. Farris,
633 S.W.2d 497, 499-500 (Tex. 1982)).
IV. PALMER ’S DISCOVERY REQUESTS AND JAY’S RESPONSES
In their petition for writ of mandamus, the Williamses argue that Palmer is not
entitled to such information because Palmer has not secured an alter ego finding; Palmer
has not complied with Texas Rule of Civil Procedure 205; and Palmer’s discovery requests
are “overly broad” and irrelevant. Specifically, they argue that their personal financial
10
documents are not discoverable because: (1) Jay’s status as president of SJW does not,
by itself, make him a party to the litigation and that compliance with the discovery rules
regarding non-parties is mandatory, see TEX . R. CIV. P. 205.16; (2) the trial court abused
its discretion by failing to limit Palmer’s discovery to only that which is reasonable and
relevant to the issues in this case; and (3) the trial court abused its discretion by ordering
the production of an enormous amount of information within twenty days. Palmer responds
by arguing that the trial court’s order is correct because: (1) the evidence indicates that Jay
“is part of a scheme to avoid bonding and paying the judgment”; (2) Palmer was not
required to prove alter ego before securing discovery; (3) Jay is subject to SJW and
PCDC’s control, and therefore, Palmer complied with rule 205.1, see id.; (4) the information
requested is relevant and not overly broad; and (5) Jay has had sufficient time to produce
the requested information, especially given that production was first ordered in October
2009.
1. Alter Ego and Control
We first address Jay’s contentions involving the absence of an alter ego finding in
the record and rule 205.1 of the rules of civil procedure. In overruling Jay’s objections to
Palmer’s discovery requests and granting Palmer’s motion to compel, the trial court did not
issue any findings of fact or conclusions of law to support its rulings. In reviewing a trial
court’s decision where no findings of fact or conclusions of law are filed or requested, we
will imply all necessary findings of fact to support the trial court’s decision. See Pharo v.
Chambers County, 922 S.W.2d 945, 948 (Tex. 1996); see also Gonzalez v. Villarreal, 251
6
Texas Rule of Civil Procedure 205.1 provides that “[a] party m ay com pel discovery from a
nonparty—that is, a person who is not a party or subject to a party’s control— only by obtaining a court order
. . . or by serving a subpoena . . . a request for production of docum ents and tangible things under this rule.”
T EX . R. C IV . P. 205.1 (em phasis added).
11
S.W.3d 763, 775 (Tex. App.–Corpus Christi 2008, pet. dism’d w.o.j.) (citing Cadle Co. v.
Ortiz, 227 S.W.3d 831, 834 (Tex. App.–Corpus Christi 2007, pet. denied)). The trial court’s
decision must be affirmed if it can be upheld on any legal theory that finds support in the
evidence. Worford v. Stamper, 801 S.W.2d 108, 109 (Tex. 1990); see Doe v. Tarrant
County Dist. Attorney’s Office, 269 S.W.3d 147, 152 (Tex. App.–Fort Worth 2008, no pet.).
As noted earlier, the trial court granted Palmer’s motion to compel the Williamses
to provide the financial information requested in Palmer’s requests for production and
accompanying interrogatories and overruled Jay’s objections to Palmer’s discovery
requests. To the extent that the supreme court in In re Smith suggested that an alter ego
and/or control finding is necessary to compel discovery from a non-party not subject to
Texas Rule of Civil Procedure 205.1, we conclude that the trial court implicitly determined
that Jay, as president of SJW, was either under the control of SJW, a named party in the
underlying lawsuit, or it implicitly found that Jay was an alter ego of SJW.7 The record in
the underlying case is replete with evidence that Jay is the president of SJW; that he
participates heavily in the management of SJW; and that he was a key player in the
underlying case where the jury concluded that SJW committed fraud, breach of fiduciary
duty, and other business torts against Palmer.8 Because there is evidence in the record
7
At the July 22, 2009 hearing, counsel for Palm er adm itted that “you [the trial court], at som e point,
are going to have to decide whether or not— whether or not this— Jay W illiam s, Jr. is the alter ego of these
com panies. . . . But again, this issue is, is Jay W illiam s, Jr. the alter ego. I have to— we have to prove this
to you.”
8
The Texas Suprem e Court has stated that “‘[a]lter ego applies when there is such unity between [the]
corporation and the individual that the separateness of the corporation has ceased . . .’ [;] an alter ego finding
is relevant to the determ ination of the judgm ent debtor’s worth.” In re Smith, 192 S.W .3d at 568 (quoting
Castleberry v. Branscum, 721 S.W .2d 270, 272 (Tex. 1986)). The Castleberry court noted that:
[A]lter ego is only one of the bases for disregarding the corporation fiction: where a
corporation is organized and operated as a m ere tool or business conduit of another
corporation.
Alter ego applies when there is such unity between the corporation and the individual
12
that Jay was subject to the control of SJW and PCDC, rule 205.1 is not applicable. See
TEX . R. CIV. P. 205.1. We find evidence in the record to support the trial court’s implicit
control and/or alter ego findings.9 To hold otherwise would be to abrogate the governing
standard that the trial court’s decision must be affirmed if it could be upheld under any legal
theory finding support in the record. See Worford, 801 S.W.2d at 109; see also Doe, 269
S.W.3d at 152.
Nevertheless, the Texas courts have held that:
Texas law does not require that a prima facie showing be made before a trial
court can exercise its discretion to order the production of documents
relevant to a damage claim asserted by the plaintiff in a plaintiff’s pleadings.
With respect to the discovery on net worth, our Supreme Court held in
Lunsford v. Morris, 746 S.W.2d 471, 473 (Tex. 1988) that:
“Our rules of civil procedure and evidence do not require similar
practices [i.e., that a prima facie right to punitive damages be established or
delaying the production until the jury hears evidence sufficient to submit a
punitive damage issue] before net worth may be discovered. Absent a
privilege or specifically enumerated exemption, our rules permit discovery of
any ‘relevant’ matter; thus there is no evidentiary threshold a litigant must
cross before seeking discovery.”
In re Garth, 214 S.W.3d 190, 194 (Tex. App.–Beaumont 2007, orig. proceeding) (quoting
Lunsford v. Morris, 746 S.W.2d 471, 473 (Tex. 1988); see In re House of Yahweh, 266
that the separateness of the corporation has ceased and holding only the corporation liable
would result in injustice. It is shown from the total dealings of the corporation and the
individual, including the degree to which corporate form alities have been followed and
corporate and individual property have been kept separately, the am ount of financial interest,
ownership and control the individual m aintains over the corporation, and whether the
corporation has been used for personal purposes. Alter ego’s rationale is: if the
shareholders them selves disregard the separation of the corporate enterprise, the law will
also disregard it so far as necessary to protect the individual and corporate creditors.
721 S.W .2d at 272 (internal citations om itted).
9
W e note that the Texas Suprem e Court has explicitly stated that the trial court’s im plicit control
and/or alter ego finding “m ay not be used to enforce the judgm ent against the unnam ed [party] or any other
nonjudgm ent debtor, but only to determ ine the judgm ent debtor’s net worth for purposes of Rule 24.” In re
Smith, 192 S.W .3d at 568-69. Thus, the trial court’s im plicit control and/or alter ego finding m ay not be used
by Palm er to collect on the judgm ent from the W illiam ses personally absent any other findings. See id.
13
S.W.3d 668, 673 (Tex. App.–Eastland 2008, orig. proceeding); In re W. Star Trucks US,
Inc., 112 S.W.3d 756, 763 (Tex. App.–Eastland 2003, orig. proceeding); Al Parker Buick
Co. v. Touchy, 788 S.W.2d 129, 131 (Tex. App.–Houston [1st Dist] 1990, orig. proceeding).
While the case law in this area is sparse and not entirely clear, it may be that Palmer was
not required to prove that Jay was under the control or was the alter ego of SJW and
PCDC so long as the evidence Palmer requested is relevant and necessary to the matters
in this case. Regardless, under either analysis, we must analyze the propriety of the trial
court’s orders compelling Jay to comply with Palmer’s discovery requests.
2. Palmer’s Discovery Requests
The record reflects that Palmer served his first set of post-judgment requests for
production on Jay, which contained thirteen requests for information. Jay responded to
Palmer’s production requests on February 25, 2009, asserting numerous objections to
each and every production request made by Palmer. Palmer’s production requests are as
follows:
• In his first request for production, Palmer requested that Jay and Dena provide
“[c]opies of your income tax returns, with all attachments, and those of your spouse
for the last five years”;
• In his second request for production, Palmer sought “canceled checks, bank
statements, check-stub records, and other banking records pertaining to [Jay’s]
financial affairs and those of [Dena’s] for any account on which you have signatory
authority within the past four years”;
• Palmer’s third request for production sought “[c]opies of all books, record[s], and
financial statements kept or issued by [Jay] for the last four years”;
• In his fourth production request, Palmer requested that Jay produce all records
pertaining to any ownership interest Jay or Dena had in real or personal property for
the past four years;
• The fifth production request asked Jay to produce all documents referencing any
income received by Jay for the last four years;
14
• The sixth production request asked Jay for the names and addresses of all persons
or entities to which SJW has given a financial statement in the last five years;
• The seventh production request sought any documentation that Jay may have
regarding the sale, purchase, or conveyance of any real or personal property made
by Jay within the last five years;
• In his eighth production request, Palmer sought all documents that reference “any
and all cash in any account owned or claimed by [Jay] held or deposited with any
bank or other financial institution”;
• By his ninth production request, Palmer asked for all documents referencing any
“assets held in trust, in an estate, or in any other name or capacity in which [Jay]
may claim or have an interest”;
• The tenth production request sought all documents referencing any other assets
that Jay has or had an interest in the last five years;
• In his eleventh production request, Palmer requested that Jay produce all
documents pertaining to any liabilities that Jay may have that has not already been
disclosed;
• The twelfth production request pertained to “[a]ll documents that evidence safe-
deposit boxes, lock boxes, and storage facilities of any kind to which SJW Property
Commerce, Inc. has access”; and
• The final production request asked Jay to produce any documents to which Jay
referred in his answers to Palmer’s interrogatories.
To each of Palmer’s requests for production, Jay objected to the requests as overly broad,
burdensome, harassing, an inappropriate request served upon a non-party to the lawsuit,
and an unconstitutional invasion of his privacy.
In addition to his thirteen requests for production, Palmer also tendered nineteen
interrogatories, to which Jay lodged identical objections as made to each of Palmer’s
production requests. The interrogatories inquire about the following:
• Jay’s net worth and an inventory of every asset and liability included in the net worth
calculation;
• Any ownership or leasehold interest Jay has in any real property;
• Information about any liens, mortgages, or any other encumbrances on real
15
property owned by Jay;
• The date of purchase, purchase price, and amount of equity in any homes owned
by Jay;
• Information about any vehicles owned by Jay;
• Specific information, including present balance and authorized signatures, on any
checking and savings accounts that Jay maintains;
• Information about “any stocks, bonds, or other securities of any class in any
government, governmental agency, company, firm[,] or corporation”;
• Any claims for money against others, including judgments, personal loans, or other
notes;
• The location of any safe-deposit boxes or other depositories for securities, cash,
and other valuables;
• Information about conveyances of land or assets by sale, gift, or otherwise to others
within the past three years;
• Any ownership interests Jay may have in any businesses;
• Information about accounts receivables for the past two years in which Jay may
have an interest;
• Information about any transactions Jay may have had with Dena or other family
members involving “a transfer, conveyance, assignment, or other disposition of any
. . . real or personal property in the past five years”;
• Any debts that Jay may have;
• Any payments made to creditors within the past two years;
• Any interest that Jay may have in pension plans, retirement fund, or profit-sharing
plans; and
• Information about the source of the income listed on Jay’s IRS tax returns and other
information pertaining to the tax returns;
3. Income Tax Returns
The thrust of Palmer’s discovery requests is to ascertain the net worth of SJW and
PCDC for the years immediately preceding the trial court’s February 7, 2008 final judgment
16
until now by tracing the alleged transfer of assets by Jay to other companies and to his
personal accounts. In ascertaining net worth, Palmer seeks information regarding the
assets and interests held by Jay in real and personal property and other financial records
created or held by Jay. We must determine whether the information sought by Palmer is
relevant and material to the determination of SJW and PCDC’s net worth. Among the
information requested by Palmer of the Williamses is income tax returns filed by Jay and
Dena for the past five years. With respect to federal income tax returns, the Texas
Supreme Court has long cautioned that:
Subjecting federal income tax returns of our citizens to discovery is
sustainable only because the pursuit of justice between the litigants
outweighs protection of their privacy. But sacrifices of the latter 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.
Maresca v. Marks, 362 S.W.2d 299, 301 (Tex. 1962) (orig. proceeding); see Hall v. Lawlis,
907 S.W.2d 493, 494 (Tex. 1995) (orig. proceeding) (per curiam) (concluding that income
tax returns are discoverable to the extent that they are relevant and material to issues
presented in the lawsuit); Sears, Roebuck & Co. v. Ramirez, 824 S.W.2d 558, 559 (Tex.
1991) (orig. proceeding) (per curiam) (concluding that the issuance of mandamus was
“guided by our reluctance to allow uncontrolled and unnecessary discovery of federal
income tax returns”); In re Garth, 214 S.W.3d at 193 (“Because tax returns do not
necessarily show an individual’s net worth, a tax return is not automatically discoverable.”)
(citing Chamberlain v. Cherry, 818 S.W.2d 201, 205-06 (Tex. App.–Amarillo 1991, orig.
proceeding) (stating that income tax returns are not necessarily indicative of net worth
because they only show income for each year for which the returns are filed)).
Once an objection to the production of federal income tax returns is asserted, unlike
17
the production of other financial records, the party seeking discovery of the tax returns
bears the burden of demonstrating relevance and materiality. See El Centro del Barrio,
Inc. v. Barlow, 894 S.W.2d 775, 779 (Tex. App.–San Antonio 1994, orig. proceeding)
(citing Maresca, 362 S.W.2d at 300).
Federal income tax returns are not material if the same information can be obtained
from another source. See id. at 780; see also Cherry, 818 S.W.2d at 206 (“[W]hen
financial statements accurately revealing a defendant’s net worth are available, income tax
returns are simply not relevant.”). This limitation requires the requesting party to show that
the relevant information sought through the returns cannot be obtained from another
source. See El Centro del Barrio, 894 S.W.2d at 780 (citing Kern, 840 S.W.2d at 738).
Based on our review of the record, we cannot say that Palmer has met his burden
of proving that the Williamses income tax returns are relevant and material to the
determination of SJW’s net worth. See Maresca, 362 S.W.2d at 300; see also El Centro
del Barrio, Inc., 894 S.W.2d at 779; Cherry, 818 S.W.2d at 206. As noted above, an
income tax return reflects that amount of income received by a party during the given tax
year. See In re Garth, 214 S.W.3d at 193; Cherry, 818 S.W.2d at 205-06. It appears that
such information can be obtained from other sources requested by Palmer, including his
requests for Jay’s “books, record[s], and financial statements” for the past four years and
“[a]ll documents that constitute or refer in any way to any income received by you for the
last four years.” See El Centro del Barrio, 894 S.W.2d at 780; see also Cherry, 818
S.W.2d at 206. Because evidence of Jay’s income received for the last several years can
be obtained from other sources, we conclude that Palmer has not proven himself entitled
to production of the Williamses personal income tax returns. See Wal-Mart Stores, Inc.
v. Alexander, 868 S.W.2d 322, 331 (Tex. 1993) (Gonzalez, J., concurring) (“[T]rial courts
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should not allow discovery of private financial records, such as tax returns, when there are
other adequate methods to ascertain net worth, such as audited financial reports or W-2
statements.”); Ramirez, 824 S.W.2d at 559; see also El Centro del Barrio, 894 S.W.2d at
780; Cherry, 818 S.W.2d at 206. As such, the trial court abused its discretion in ordering
the Williamses to produce these documents.10 See In re Dana Corp., 138 S.W.3d at 301;
In re Am. Optical Corp., 988 S.W.2d at 713; see also In re Brewer Leasing, Inc., 255
S.W.3d at 711.
4. Other Financial Records
While we have concluded that the trial court abused its discretion in ordering the
Williamses to produce their personal income tax returns to Palmer, we hold that the trial
court did not abuse its discretion in requiring the Williamses to produce other records and
documentation of their personal finances in ascertaining the net worth of SJW and PCDC.
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. Peeples v. Honorable
Fourth Supreme Judicial Dist., 701 S.W.2d 635, 637 (Tex. 1985) (orig. proceeding); see
Kern v. Gleason, 840 S.W.2d 730, 735-37 (Tex. App.–Amarillo 1992, orig. proceeding)
(applying the general to production of financial records). Further, we must keep in mind
that the purpose of discovery is to seek the truth so that disputes may be decided by what
the facts reveal, not by what facts are concealed. See In re Colonial Pipeline Co., 968
S.W.2d 938, 941 (Tex. 1998) (orig. proceeding).
The Texas Supreme Court has held that “in cases in which punitive or exemplary
10
W e are m indful that our opinion is based solely on the record before us, and we express no opinion
regarding whether, after additional discovery, the tax returns could be shown to be m aterial. See Kern v.
G leason, 840 S.W .2d 730, 735 (Tex. App.–Am arillo 1992, no writ) (noting that if an alternate source of
inform ation proves to be incom plete, a renewed request for incom e tax returns could be m ade); see also In
re Brewing Leasing, Inc., 255 S.W .3d 708, 716 n.3 (Tex. App.–Houston [1st Dist.] 2008, orig. proceeding).
19
damages may be awarded, parties may discover and offer evidence of a defendant’s net
worth.” Lunsford, 746 S.W.2d at 473; see In re Jacobs, 300 S.W.3d 35, 40 (Tex.
App.–Houston [14th Dist.] 2009, orig. proceeding) (“A defendant’s net worth is relevant in
a suit involving exemplary damages.”); see also TEX . CIV. PRAC . & REM . CODE ANN . §
41.003(a) (Vernon Supp. 2009) (authorizing exemplary damage awards in various causes
of action, including fraud). Here, the jury awarded Palmer with more than $2 million in
punitive damages against SJW. In our previous opinion, we concluded that such damages
were recoverable based on the causes of action brought by Palmer, and we held that the
jury’s punitive damages awarded was supported by legally and factually sufficient
evidence. See SJW Prop. Commerce, Inc., 314 S.W.3d at 198-99; see also In re Garth,
214 S.W.3d at 194. Moreover, in this dispute, Palmer alleges that Jay and SJW have
transferred money and assets out of SJW in order to reduce the net worth of the company
to essentially make SJW judgment-proof. Based on these circumstances, we conclude
that, with the exception of the Williamses personal income tax returns, the financial
information that Palmer seeks to obtain through post-judgment discovery is highly relevant
and material to determining the net worth of SJW, especially considering: (1) that the jury
concluded that SJW committed fraud, breach of fiduciary duty, and other business torts
against Palmer; (2) that the trial court, in arriving at its orders in this case, implicitly
concluded that Jay was under the control of SJW or was an alter ego of SJW; and (3) the
substance of Palmer’s allegations in this dispute.
5. The Relevancy and Breadth of Palmer’s Discovery Requests
In any event, the Williamses argue that their personal financial information is not
relevant to the calculation of SJW and PCDC’s net worth. Further, the Williamses assert
that Palmer’s discovery requests are overly broad in that they are “unlimited in time or go
20
back four to five years,” which no longer reflects Jay’s current net worth. However, we are
not persuaded by the Williamses’ relevancy and broadness arguments because Palmer
alleges that Jay has systematically moved money and assets from SJW and PCDC to
other shell corporations and to other individuals as commissions from the date that the
original petition in the underlying case was filed—December 2, 2003—to the present. See
SJW Prop. Commerce, Inc., 314 S.W.3d at 179. Thus, the scope of Palmer’s discovery
requests needed to be broad so as to trace the purported moving of assets and money that
allegedly occurred over the course of several years by representatives by SJW and PCDC
in preparation for a possible negative jury verdict in the underlying case.
The Williamses also appear to complain about language included by Palmer in his
discovery requests that he sought to discover “all” financial records in the care, custody,
or control of Jay. The Williamses argue that Palmer’s usage of the term “all” renders his
requests overly broad. We disagree.
The supreme court has recently noted that “[d]iscovery is a tool to make the trial
process more focused, not a weapon to make it more expensive. Thus[,] trial courts ‘must
make an effort to impose reasonable discovery limits.” In re Allstate County Mut. Ins. Co.,
227 S.W.3d 667, 668 (Tex. 2007) (per curiam) (quoting In re CSX Corp., 124 S.W.3d at
152). Further, “an order that compels overly broad discovery well outside the bounds of
proper discovery is an abuse of discretion for which mandamus is the proper remedy.” In
re Graco Children’s Prods., Inc., 210 S.W.3d 598, 600 (Tex. 2006) (per curiam). “A central
consideration in determining overbreadth is whether the [discovery] request could have
been more narrowly tailored to avoid including tenuous information . . . .” In re CSX Corp.,
124 S.W.3d at 153. Comment 1 to Texas Rule of Civil Procedure 192 states that “[w]hile
the scope of discovery is quite broad, it is nevertheless confined by the subject matter of
21
the case and reasonable expectations of obtaining information that will aid resolution of the
dispute.” TEX . R. CIV. P. 192 cmt. 1. In addition, the Texas Supreme Court has repeatedly
admonished that discovery may not be used as a fishing expedition. K Mart Corp. v.
Sanderson, 937 S.W.2d 429, 431 (Tex. 1996) (orig. proceeding) (per curiam); Hall, 909
S.W.2d at 492; Texaco, Inc., 898 S.W.2d at 815. Requests that are overly broad
encompass time periods or activities beyond those at issue in the case or, in other words,
matters of questionable relevance. See In re Alford Chevrolet-Geo, 997 S.W.2d 173, 180
n.1 (Tex. 1999) (orig. proceeding); see also In re Jacobs, 300 S.W.3d at 44. Nevertheless,
the scope of discovery is a matter of trial-court decision. In re CSX Corp., 124 S.W.3d at
152.
The mere existence of the language “any and all” does not violate the specificity
requirements of discovery as long as the request is further restricted to a particular type
or class of documents. See Chamberlain v. Cherry, 818 S.W.2d 201, 204 (Tex.
App.–Amarillo 1991, orig. proceeding). Here, Palmer does use the term “all” frequently in
his discovery requests. For example, Palmer requested “[a]ll canceled checks, bank
statements, check-stub records, and other banking records pertaining to [Jay’s] financial
affairs and those of [Dena’s] for any account on which [Jay has] signatory authority within
the past four years.” While the use of the term “all” in this request appears to be quite
broad, the request is restricted to a class of documents and is further restricted by a date.
Each of the discovery requests in which Palmer utilizes the term “all” is restricted by a date
or a class or type of documents. Thus, we conclude that Palmer’s discovery requests are
not overly broad and are relevant to the trace the purported transferring of money and
assets to deflate the net worth of SJW and PCDC so as to inhibit Palmer from collecting
on his judgment against the companies.
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To the extent that the Williamses argue that they have a constitutional right to
privacy with respect to their personal financial records, we note that the United States
Supreme Court has held that there are no constitutional rights to privacy affected by
disclosure of banking records or in personal financial records. See United States v. Miller,
425 U.S. 435, 442 (1976) (involving the subpoena of banking records served on a third-
party); Miller v. O’Neill, 775 S.W.2d 56, 59 (Tex. App.–Houston [1st Dist.] 1989, no writ)
(providing that despite the inevitable intrusion, discovery of financial records is permitted
and is not an invasion of privacy); see also In re Manion, No. 07-08-00318-CV, 2008 Tex.
App. LEXIS 6813, at **6-7 (Tex. App.–Amarillo, Sept. 11, 2008, no pet.). Financial
statements and deposit slips contain information that is voluntarily conveyed to banks and
exposed to bank employees in the ordinary course of business. Miller, 425 U.S. at 442.
Likewise, checks are not confidential communications, but rather negotiable instruments
used in commercial transactions. Id. Based on this authority, we find the Williamses’
privacy argument to be in contravention of the governing policy consideration that the trial
court does not abuse its discretion by ordering the production of personal financial
documents that are relevant and material to prove net worth. See Lunsford, 746 S.W.2d
at 473; see also In re Brewer Leasing, Inc., 255 S.W.3d at 712; In re Garth, 214 S.W.3d
at 194; Delgado v. Kitzman, 793 S.W.2d 332, 333 (Tex. App.–Houston [1st Dist.] 1990,
orig. proceeding); O’Neill, 775 S.W.2d at 59. Accordingly, we find the Williamses privacy
arguments to be without merit.
Regarding the Williamses argument that the trial court should have limited discovery
to “the time the bond is set,” see Enviropower LLC v. Bear, Stearns & Co., Inc., 265
S.W.3d 1, 5 (Tex. App.–Houston [1st Dist.] 2008, pet. denied), we once again note that
Palmer alleges that representatives of SJW and PCDC transferred money from SJW and
23
PCDC over the course of several years in an effort to avoid paying the February 7, 2008
final judgment in favor of Palmer. Therefore, in order to prove that the affidavits depicting
SJW and PCDC’s net worth are incorrect and that the cash deposits in lieu of supersedeas
bond are insufficient, Palmer must trace the purported transferring of assets to and from
the companies that allegedly dates back to at least 2007. Given the circumstances of this
case, we hold that Palmer’s discovery requests spanning several years is relevant in
proving Palmer’s allegations that SJW and PCDC’s net worth is inaccurate at the time the
cash deposits in lieu of supersedeas bond were made because of the purported fraudulent
transfers. See TEX . BUS. & COM . CODE ANN . §§ 24.001-.013 (Vernon 2009) (codifying the
“Uniform Fraudulent Transfer Act”).
Finally, we disagree with the Williamses’ argument that the trial court abused its
discretion by requiring them to produce documents and respond to interrogatories within
an unreasonable amount of time. In support of their contention, the Williamses cite to
Texas Rule of Civil Procedure 176.7, which states that “[i]n ruling on objections or motions
for protection, the court must provide a person served with a subpoena an adequate time
for compliance . . . .” TEX . R. CIV. P. 176.7. Here, Jay was not served with a subpoena to
produce the information requested, and, as noted earlier, the record establishes that Jay
is subject to the control of SJW and PCDC. Thus, Jay does not fall within the ambit of rule
176.7. See id. Jay does not cite any other authority to support this contention. The record
reflects that Palmer served Jay with post-judgment discovery on January 27, 2009. The
record also reflects that the trial court, after conducting a hearing on Palmer’s motion to
compel on July 22, 2009, ordered Jay to produce the requested information within twenty
days of when the trial judge signed the order, which occurred on October 30, 2009. Jay
has had ample time to produce the requested information. Furthermore, it is of no
24
consequence that Jay filed a motion for reconsideration of the trial court’s October 30,
2009 order. Jay is not free to ignore the trial court’s October 30, 2009 order simply
because he filed an unsuccessful motion for reconsideration. Based on the foregoing, we
conclude that the trial court’s ordering of Jay to produce the requested information within
twenty days of October 30, 2009, was not unreasonable; thus, the trial court did not abuse
its discretion.
V. CONCLUSION
In sum, we conclude that the trial court abused its discretion in ordering the
Williamses to produce their personal income tax returns. On the other hand, we hold that
the trial court did not abuse its discretion in ordering the Williamses to produce other
personal financial information that Palmer requested. We LIFT our stay order of May 10,
2010, and conditionally grant the Williamses’ petition for writ of mandamus as it pertains
to the income tax returns. We deny their petition for writ of mandamus in all other
respects. We are confident that the trial court will modify its October 30, 2009 and April
26, 2010 orders to reflect that Palmer has not proven himself entitled to the Williamses’
personal income tax returns. The writ will issue only if the trial court fails to comply with
this opinion.
___________________
ROGELIO VALDEZ,
Chief Justice
Delivered and filed the
23rd day of September, 2010.
25