Opinion ID: 2517270
Heading Depth: 2
Heading Rank: 3

Heading: Discovery Analysis in Alcon v. Spicer

Text: Previously, in Alcon, we examined the basic legal issue now before us: whether a trial court can compel the discovery of an individual's tax returns. The facts in Alcon are analogous to the current action. In that case, Alcon filed a personal injury suit against Spicer, arising from a car accident. Alcon, 113 P.3d at 737. As part of that action, Alcon sought damages for loss of past and future earnings and earning potential. Id. Although Alcon provided Spicer with W-2 statements from her employment at King Soopers, she refused to produce copies of her tax returns from the prior ten years. Id. The trial court reasoned that Alcon's earning history was relevant to her asserted wage loss claim, and thus ordered her to disclose the documents. Id. at 738. In an original proceeding before this court, Alcon argued that due to the confidential nature of tax returns, Spicer was required to demonstrate a compelling need for the information in the returns before she could be ordered to disclose them. Id. at 743. Spicer, on the other hand, claimed that he needed a complete picture of Alcon's income as presented in her tax returns in order to properly defend against her claim for lost earnings. Id. In reviewing these arguments, we first emphasized the strong policy in favor of protecting the confidentiality of tax returns, as discussed above. Id. at 742-43. Then, we looked to our decision in Losavio, where we affirmed a trial court's order quashing a grand jury's subpoena duces tecum, which had required the department of revenue to produce state tax returns for two individuals and six corporations. Id. at 743. Relying on the analysis in Losavio, we held in Alcon that the party seeking release of a tax return bears the burden of showing a `compelling need' for the return. Absent a compelling need, a subpoena for a tax return should be quashed. Id. (internal citation omitted). We explained that our opinion in Losavio did not condition the compelling need requirement on the involvement of a grand jury or the department of revenue; thus, the analysis could be extended to the situation in Alcon. Id. Ultimately, we held that Spicer had not demonstrated a compelling need for the information in Alcon's returns. Id. Alcon's claim for lost earnings was based upon her wages from employment at King Soopers. Id. Spicer could defend against this claim using the information found in the previously disclosed W-2 statements. Id. Moreover, we held that Spicer did not need a complete picture of Alcon's income as provided by her tax returns; the W-2 statements were sufficient. Id. Finding that the trial court abused its discretion by ordering disclosure of the returns without a showing of compelling need, we vacated the trial court's discovery ruling. Id. Here, in its brief to this court, State Farm argues that the trial court properly considered its motion to compel under the compelling-need analysis of Alcon, rather than the three-part inquiry of Martinelli. Although we recognize that both of these analyses address the protection of an individual's right to confidentiality, we agree with State Farm that the Alcon analysis is the more appropriate balancing test in the current context. The first prong of Martinelli whether the party seeking protection has a legitimate expectation that the information will not be disclosedis wholly unnecessary in cases such as Alcon due to Colorado's general policy in favor of protecting tax returns. Tax returns, by their very nature, would satisfy this initial inquiry. See Alcon, 113 P.3d at 742-43. Unlike in Martinelli, there is no need to determine whether the information sought to be protected is highly personal and sensitive and whether disclosure would be offensive and objectionable to a reasonable person of ordinary sensibilities. [5] See Martinelli, 199 Colo. at 174, 612 P.2d at 1091. Moreover, in Martinelli, the dispute concerned the discovery of personnel files maintained by a government entity, the Denver Police Department. Id. at 167, 612 P.2d at 1086. Consideration of a compelling state interest (i.e., the second prong of Martinelli ) was therefore logical under the facts of that case. It has little or no applicability, however, in a case where a private party is seeking the disclosure of another private party's tax returns. Contrasting the case at hand, the test in Martinelli is most appropriate in cases where the three prongs are at issue: those involving a state interest or seeking discovery of materials that may or may not violate an individual's legitimate expectation of confidentiality. In Martinelli, this court weighed the competing interests, including the plaintiff's need to prove his case, the officers' interests in protecting the information contained in their personnel files, the general public's need to know how their government (i.e., the police department) was functioning, and Denver's interest as an employer in managing its employees. Unlike tax returns where an individual submits financial information required by specific forms and arguably knows what the returns contain, personnel files are prepared and maintained by the employer and the individual employee may or may not know what information is likely to be included. Because Martinelli is factually and legally distinguishable from both Alcon and the case before us today, we reject Stone's argument that the three-pronged analysis should have been applied by the trial court. Instead, we reaffirm the balancing of interests presented in Alcon, and clarify the proper analysis for cases involving the discovery of tax returns.