Maresca v. Marks

STEAKLEY, Justice.

Relators are Sal Maresca and Herbert Keller, individually, Desert Hills Restaurant, Inc., and Golden Door, Inc. Respondents are William Marks and Honorable David Mulcahy, District Judge. Re-lators employed respondent William Marks as manager of Desert Hills Restaurant, Inc., and Golden Door, Inc., in El Paso. He was to be paid a salary of $150.00 weekly plus 3% of the net profits. He remained in such employment from June 20, 1961, until October 17, 1961, and thereafter sued relators for 3% of the net profits during the period of his employment, for his traveling expenses in moving from New York to El Paso, for the reasonable value of the use of his automobile during the period of employment, and for exemplary damages for fraud and deceit.

By motion pursuant to the provisions of Rule 167, Texas Rules of Civil Procedure, respondent Marks sought an order of the trial court requiring relators to produce copies of the personal federal income tax returns of the individual relators and their wives for the years 1960 and 1961, and of the income tax reports filed by the corporate relators for the fiscal years ending October 31, 1960, and October 31, 1961, for inspection and copying or photographing by respondent. The individual relators are the president and vice president of the two corporations.

After hearing of the motion the trial judge ordered the entire income tax returns of all relators submitted to respondent for inspection and copying. The order recites that the trial judge “examined” all the returns “in order to determine what part of such returns, if any, were material and relevant to this cause * * * and thereupon concluded that, pursuant to the motion and pleadings, and matters of record before this court, fhe entire income tax returns in question constitute material evidence relative to the matters alleged and raised in this cause. * * *.”

Relators thereupon initiated this original mandamus proceeding seeking relief from the discovery order. Copies of the income tax returns in question are included with relators’ petition for writ of mandamus, an examination of which discloses that certain portions are irrelevant to the matters in dispute between the parties as shown in the pleadings.

Relators’ position is that the income tax returns list private information regarding charitable contributions, interest paid, real estate and other taxes paid, medical expenses, casualty loss, interest income and other matters which are totally irrelevant and immaterial and beyond the scope of the discovery proceeding. Respondent Marks in his reply to the petition for writ of mandamus takes the position that “the fact that such instruments may contain inconsequential matters, such as charitable contributions, medical expenses and casualty loss, is not sufficient to show an unreasonable invasion of private rights in this case or an abuse of discretion on the part of the trial court for which a writ of mandamus should issue.” In oral argument, counsel for respondent Marks acknowledged that there are no pleadings under which such facts contained in the income tax reports would have relevancy or materiality in his suit against relators but insisted that they are inconsequential.

We thus have the narrow but difficult question of whether the order 'of the trial judge requiring disclosure and exposure of information contained in income tax returns which is immaterial and irrelevant to the cause in which discovery is sought is a clear abuse of discretion for correction of which the writ of mandamus may issue.

The problem was considered by this court in Crane v. Tunks, 160 Tex. 182, 328 S.W.2d 434, and it was held that income tax returns are not wholly privileged documents but are subject to discovery to the extent of relevancy and materiality which must be shown. It was further held that the trial judge abused his discretion “On failing to examine the income tax return and to separate the relevant and material parts from the irrelevant and immaterial parts.” The concurring opinion pointed out that the discovery procedure clearly does not authorize the examination and reproduction of information of a highly personal and private nature not relevant and material to the issues; that since certain information in the income tax return there under review was not relevant and material, it was a clear abuse of discretion to order delivery of the entire return for examination and reproduction; and that “[mjere inspection or examination of the return” by the trial judge before ordering it delivered “could not make it any less so.” In Neville v. Brewster, Tex., 352 S.W.2d 449, 451, we said that “[i]t was incumbent upon the court to exclude those matters which were irrelevant and yet afford to the adversary all information that might be relevant and material to his cause of action.”

The assumption is implicit in the opinions of this court that a trial judge will discriminate in ordering discovery between information disclosed by income tax returns which is relevant and material to the matters in controversy and information which is not. The protection of privacy is of fundamental—indeed, of constitutional— importance. Subjecting federal income tax returns of our citizens to discovery is sustainable only because the pursuit of justice between litigants outweighs protection of their privacy. But sacrifice 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.

It is self-evident that the maximum protection of privacy is unattainable if trial' ■courts do not exercise their discretion to safeguard from discovery those portions of income tax returns which are irrelevant and immaterial, and it is our view that failure to exercise such discretion is arbitrary action. A litigant so subjected to an invasion of his privacy has a clear legal right to an extraordinary remedy since there can be no relief on appeal; privacy once broken by the inspection and copying of income tax returns by an adversary cannot be retrieved. We said in Wallace v. Briggs, 162 Tex. 485, 348 S.W.2d 523, 527: “This being an interlocutory order from which no appeal will lie the petitioner’s only remedy is by way of writ of mandamus. In a similar situation we have issued writs of mandamus where it appears that the trial judge in entering interlocutory orders has abused his discretion. Crane et al. v. Tunks, [160], Tex. [182], 328 S.W.2d 434; Womack v. Berry, 156 Tex. 44, 291 S.W.2d 677; Southern Bag & Burlap Co. v. Boyd, 120 Tex. 418, 38 S.W.2d 565.”

We therefore hold that the trial judge abused his discretion in ordering re-lators to produce for respondent’s inspection and copying their entire income tax returns for the years in question, without separation of the relevant and material parts from the irrelevant and immaterial parts thereof.

We fully recognize, as said in the concurring opinion in Crane v. Tunks, that we cannot by writ of mandamus supervise the exercise of discretion by a trial judge in his rulings on the relevancy and materiality of information contained in income tax returns. We can, and should, however, afford extraordinary relief when no discretion has been exercised, i. e., when the order of the trial judge does not separate for protection against discovery those portions of income tax returns plainly irrelevant and immaterial to the matters in controversy.

The operation of the order under review has been held in abeyance pending our action. We are certain that it will be succeeded by an order consistent with the views we have expressed and that it will be unnecessary for a writ of mandamus to issue at this time.