Court Opinion

ID: 9674264
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:25:40.508528+00
Date Added: 2024-06-11T18:16:26.434166
License: Public Domain

GONZALEZ, Justice,
concurring.
I agree with the Court’s opinion and judgment. I write separately, however, to address the following issues: 1) the need for bifurcated trials when punitive damages are sought, 2) the admissibility of gross sales as evidence of net worth, and 3) the types of information which are discoverable in determining net worth.

Bifurcation

We held in Lunsford v. Morris, 746 S.W.2d 471, 473 (Tex.1988), that evidence of a defendant’s net worth is relevant and discoverable1 in determining the proper amount of punitive damages. This decision aligned Texas with the overwhelming majority of other jurisdictions on this issue. See id. at 472 n. 2. As noted in Lunsford, the amount of punitive damages necessary to punish and deter wrongful conduct depends on the financial strength of the defendant. “That which could be an enormous penalty to one may be but a mere annoyance to another.” Id. at 472.
However, evidence of a defendant’s net worth, which is generally relevant only to the amount of punitive damages, potentially prejudices the jury’s determination of the other issues in a tort case. We should hold therefore, that if presented with a timely motion by either party, the trial court should bifurcate the determination of the amount of punitive damages from the remaining issues. Id. at 474-75 (Gonzalez, J., dissenting' on motion for rehearing). Under this approach, the jury first hears evidence relevant to liability for actual damages, the amount of actual damages, and liability for punitive damages (e.g., gross negligence), and returns findings on these issues. If the jury finds liability for punitive damages, the same jury is presented with evidence of the defendant’s net worth, plus any other evidence relevant only to the amount of punitive damages. The jury then determines the proper amount of punitive damages, considering the totality of the evidence presented at both phases of the trial.
The American Bar Association, American Law Institute, and American College of Trial Lawyers all advocate bifurcation in punitive damage trials.2 In addition, at least eleven states now require bifurcation of trials in which punitive damages are sought.3 Eight of these, California, Georgia, Missouri, Montana, Nevada, Tennessee, Utah, and Wyoming, generally follow the procedure outlined above, in which the amount of punitive damages is bifurcated from the remaining issues. The other states require bifurcation of the entire punitive damage claim, including liability and amount. I believe the former approach is preferable, as evidence relevant to punitive damage liability, such as evidence of gross negligence, will also generally be relevant to actual liability. Bifurcating only the determination of the amount of punitive damages eliminates the most serious risk of prejudice, while minimizing the confusion and inefficiency that can result from a bifurcated trial. See Lunsford, 746 S.W.2d at 474-75 (Gonzalez, J., dissenting on motion for re*330hearing); Id. at 477 (Phillips, C.J., dissenting on motion for rehearing). See also, John L. Meredith, Bifurcated Trials — When to Expose Net Worth? 12 The Advocate, State Bar Litigation Section Report, 154 (October 1993) (discussing procedural aspects of “Wyoming plan”).

Admissibility of Evidence of Gross Sales

In the case before us, Wal-Mart vigorously objected to the plaintiffs introduction of evidence of gross sales. The trial court overruled the objection and evidence was adduced that Wal-Mart had gross sales of about $5 million in January 1989. In closing argument, the plaintiffs attorney used this evidence to suggest to the jury that they should utilize gross sales to measure the punitive damage award to the plaintiff. In reviewing the punitive damage award, the court of appeals held it would not follow the reasoning of Southland Corp. v. Burnett, 790 S.W.2d 828, 830 (Tex.App.-El Paso 1990, no writ) (holding that admission of evidence of defendant’s gross receipts was reversible error) due to the court’s conclusion that admission of the evidence was not “harmful error.” 827 S.W.2d 420, 425. In its first point of error to this Court, Wal-Mart alleges that the admission of evidence of gross sales was harmful error as a matter of law. The majority does not address this point because it concludes that it is unnecessary since there is no evidence of gross negligence.
This Court in Lunsford failed to define net worth and failed to suggest a procedure for placing such evidence before the jury.4 I predicted then that in the absence of guidance from this Court, “confusion will prevail as practitioners and judges attempt to ascertain the components of ‘net worth.’ ” Lunsford, 746 S.W.2d at 475.
Conflicting appellate court decisions on the meaning of the term “net worth” are evidence of the confusion surrounding this fundamental issue. See Southland Corp. v. Burnett, 790 S.W.2d 828 (Tex.App.-El Paso 1990, no writ) (admission of gross sales on issue of punitive damages constitutes harmful error); Miller v. O’Neill, 775 S.W.2d 56 (Tex.App.—Houston [1st Dist.] 1989, orig. proceeding) (order denying discovery of income tax returns and net worth statements was abuse of discretion); Delgado v. Kitzman, 793 S.W.2d 332, 333 (Tex.App.—Houston [1st Dist] 1989, orig. proceeding) (order denying discovery of income tax returns and net worth statements was abuse of discretion);5 K-Mart Corp. v. Pearson, 818 S.W.2d 410 (Tex.App.—Houston [1st Dist.] 1991, no writ) (gross sales, net income, and net worth all admitted into evidence). This confusion should be resolved by this Court. In the absence of a resolution, however, I will once again offer my suggestions on this matter.
The courts have utilized the term “net worth” in punitive damage cases to describe the wealth or means of defendants. Lunsford, at 471-73. However, the term has not been further defined in this state. Is net worth purely the capital of an entity — the entity’s assets minus its liabilities, or is net worth a more fluid concept, based on net income and the earning capacity of the entity?
Other jurisdictions have struggled with the issue of what constitutes “net worth.” See, Annotation, Punitive damages: Relationship to Defendant’s Wealth as Factor in Determining Propriety of Award, 87 A.L.R. 4th 141 (1991); Martin J. McMahon, Annotation, Discovery of Defendant’s Sales, Earnings, or Profits on Issue of Punitive Damages in Tort Action, 54 A.L.R. 4th 998 (1987). Many jurisdictions allow discovery and admission of evidence of net income as well as the capital of the entity. 87 A.L.R. 4th 141. Although a well-entrenched fear exists in our legal system that jury determinations would be biased by evidence of the relative wealth of the parties, the jury must have enough information to assess the true means of the defendant. Evidence of net earnings history may *331reduce the likelihood of a jury being misled by the net worth figure alone since a defendant’s earnings may not directly translate into net worth. Marsee v. United States Tobacco Co., 639 F.Supp. 466, 472 (W.D.Okla.1986), aff'd, 866 F.2d 319 (10th Cir.1989); Gerald R. Powell and Cynthia A. Leiferman, Results Most Embarrassing: Discovery and Admissibility of Net Worth of the Defendant, 40 Baylor L.Rev. 627, 529-32 (1988). A rule which limits admissibility only to assets minus liabilities may exclude relevant evidence and impede the goal of determining the true wealth of a defendant. On the other hand, because financial evidence is so potentially prejudicial, courts must be especially sensitive when reviewing this evidence under Rule 403 of the Texas Rules of Civil Evidence.
Not all financial information relating to a defendant will be relevant to its net worth. A corporate defendant’s assets are irrelevant in determining its wealth until its liabilities are subtracted. Similarly, a company’s gross sales are only remotely related to its wealth until the company’s expenses are subtracted. In order to avoid prejudice, parties should not be allowed to tell only part of the story. Only evidence which allows the jury to assess the wealth of the defendant without requiring the jury to make calculations should withstand review under Rule 403. Under this standard, gross sales would be clearly inadmissible.
The court of appeals held that the admission of gross sales evidence over objection was not reversible error because there was other evidence in the record of Wal-Mart’s “financial strength.” The evidence the court of appeals alludes to is the “size and volume of Sam’s and Wal-Mart,” the amount of the lease payment, and a provision in the lease for self insurance. In today’s economic climate, size and sales volume can be very misleading. It is not uncommon for “big” companies to file for bankruptcy. Without evidence of Wal-Mart’s liabilities, the evidence the court of appeals finds persuasive is irrelevant to determining net worth. Because the evidence only tells part of the story, it tainted the punitive damages award. We should hold that the only evidence which is admissible at trial on the issue of net worth is the net income of the defendant and the defendant’s capital — its assets minus its liabilities.

Information Discoverable to Determine Net Worth

It is also important to delineate the types of information which are discoverable in determining net worth. Discovery of certain types of financial information raises privacy concerns. For example, this Court has recognized that there should not be uncontrolled and unnecessary discovery of federal income tax returns. Maresca v. Marks, 362 S.W.2d 299, 300-01 (Tex.1962) (orig. proceeding); Crane v. Tunks, 160 Tex. 182, 328 S.W.2d 434, 440 (1959) (orig. proceeding), rev’d on other grounds, Walker v. Packer, 827 S.W.2d 833, 842 (Tex.1992).6 As a result, this Court issued a writ of mandamus to protect tax returns from discovery in a suit seeking punitive damages when the corporation had already provided certified and audited annual reports. Sears, Roebuck & Co. v. Ramirez, 824 S.W.2d 558, 559 (Tex.1992) (orig. proceeding); see also Chamberlain v. Cherry, 818 S.W.2d 201, 205-07 (Tex.App.-Amarillo 1991, orig. proceeding) (tax returns not relevant as evidence of net worth where relator makes no claim that other financial statements revealing net worth were requested and were not available). Therefore, trial courts 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.
Finally, another problem with unlimited discovery of financial information is the potential for abuse. If all that is required for discovery of sensitive, private, and confidential financial information in tort actions is the mere assertion of gross negligence in a *332pleading, needless abuse and harassment could result. I suggest that a plaintiff be required to demonstrate, a factual basis for its punitive-damage claim before this type of sensitive information is allowed to be discovered. At least twelve jurisdictions now follow this approach,7 and it is also urged by the American College of Trial Lawyers.8 Otherwise, this information will be discoverable in every garden-variety fender bender case.
It is unfortunate that these important issues were not addressed today by the Court’s opinion.

. Discovery of net-worth evidence was the only issue addressed by the majority in Lunsford.

. American Bar Association, ABA Blueprint For Improving the Civil Justice System: A Report of the ABA Working Group on Civil Justice System Proposals (1992); 2 American Law Institute, Reporter Study of Enterprise Responsibility for Personal Injury 264 (Paul C. Weiler report., 1991); American College of Trial Lawyers, Report on Punitive Damages of the Committee on Special Problems in the Administration of Justice 18-19 (1989).

.Cal.Civ.Code § 3295(d) (West Supp.1993); Ga. Code Ann. § 51-12-5.1 (Michie Supp.1992); Kan.Stat.Ann. § 60-3702(a) (Supp.1992); Minn. Stat.Ann. § 549.20(4) (West Supp.1993); Mo. Ann.Stat. § 510.263 (Vernon Supp.1993); Mont. Code Ann. § 27-1-221(7) (1993); Nev.Rev.Stat. Ann. § 42.005(3) (Michie 1992); N.J.StatAnn. § 2A:58C-5(b) (West 1987); Utah Code Ann. § 78-18-1 (1992); Campen v. Stone, 635 P.2d 1121, 1132 (Wyo.1981); Hodges v. S.C. Toof & Co., 833 S.W.2d 896, 901-02 (Tenn.1992).

. The majority in Lunsford wrote: "We view as unnecessary and ill-advised any attempt on the limited record before us to address admissibility concerns ... pertaining to when net worth is admissible, how it will be admitted, or what it means.” 746 S.W.2d at 473 n. 4.

. A tax return does not itself show the net worth or financial condition of the person or entity filing the return.

. In Maresca, the Court wrote the following concerning the privacy interest persons have in their tax returns: "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.... ” 362 S.W.2d at 301.

. Fla.Stat.Aim. ch. 768.76 (Harrison Supp.1991); Idaho Code § 6-1604 (1990 & Supp.1992); Ill. Ann.Stat. ch. 110, ¶ 2-604.1 (Smith-Hurd Supp. 1992); Iowa Code Ann. § 668A.1(3) (West 1987); Minn.St.Ann. § 549.191 (West 1988 & Supp. 1992); Mont.Code Ann. § 27-1-221 (1993); Ark. R-Civ.P. 26(b)(1); Curtis v. Partain, 272 Ark. 400, 614 S.W.2d 671 (1981) (holding limited in Lupo v. Lineberger, 313 Ark. 315, 317, 855 S.W.2d 293, 294 (1993)); Leidholt v. District Court in and for City and County of Denver, 619 P.2d 768, 771 (Colo.1980); Mutual Life Ins. Co. v. Estate of Wesson, 517 So.2d 521 (Miss.1987), cert. denied, 486 U.S. 1043, 108 S.Ct. 2035, 100 L.Ed.2d 620 (1988); Herman v. Sunshine Chemical Specialties, Inc., 133 N.J. 329, 627 A.2d 1081 (1993); Palmisano v. Toth, 624 A.2d 314, 320 (R.I.1993); Campen, 635 P.2d at 1132 (Wyo.1981).

. Am.Coll. of Trial Lawyers, supra note 2, at 17-18.