Court Opinion

ID: 4558048
Source: CourtListenerOpinion
Date Created: 2020-08-24 07:14:47.769866+00
Date Added: 2024-06-11T08:45:48.192707
License: Public Domain

Petition for Writ of Mandamus Conditionally Granted and Memorandum
Opinion filed August 20, 2020.

                                     In The

                      Fourteenth Court of Appeals

                               NO. 14-20-00280-CV

   IN RE STEPHEN M. YAMIN, SR. AND MARY ANN YAMIN, Relators

                         ORIGINAL PROCEEDING
                           WRIT OF MANDAMUS
                              113th District Court
                             Harris County, Texas
                       Trial Court Cause No. 2017-39172

                        MEMORANDUM OPINION

      On April 15, 2020, relators Stephen M. Yamin, Sr. and Mary Ann Yamin filed
a petition for writ of mandamus in this court. See Tex. Gov’t Code Ann. § 22.221;
see also Tex. R. App. P. 52. In the petition, relator asks this court to compel the
Honorable Rabeea Sultan Collier, presiding judge of the 113th District Court of
Harris County, to set aside her April 7, 2020 order directing the Yamins to produce
their personal federal income tax returns. We conditionally grant the petition for
writ of mandamus.1

                                       BACKGROUND

       North American Interpipe (“NAI”) alleged that it sold oil and gas casing to
Texas Black Iron (“TBI”) and was not paid in full. NAI sued TBI and TBI’s
president, Stephen Yamin, and chief executive officer, Mary Ann Yamin.2 The jury
returned a verdict favorable to NAI, and the trial court, on December 30, 2019,
signed a final judgment on the verdict: $325,157.60 in economic damages, jointly
and severally; $650,315.20 in exemplary damages from each of TBI, Stephen, and
Mary Ann; $61,732.44 in prejudgment interest; and attorney’s fees for trial and
appeal.

       On January 2, 2020, Stephen, Mary Ann, and TBI superseded the judgment
by each filing an affidavit with a financial statement showing a negative net worth:
(1) negative $2,553,163 for Stephen; (2) negative $3,571,589 for Mary Ann; and (3)
negative $3,041,630.45 for TBI and by making a $200 cash deposit in lieu of a
supersedeas bond. In a January 16, 2020 filing, NAI contested the net worth
affidavits and on the same day served interrogatories and requests for production in
aid of its contest to the net worth affidavits. Among NAI’s requests were the
Yamins’ personal income tax returns. The Yamins, on February 10, 2020, produced

       1
          We requested a response from NAI. See Tex. R. App. P. 52.4. However, NAI did not
file a response.
       2
         Because the individual parties share the same surname, to avoid confusion, we refer to
them by their first names.
                                              2
some responsive documents but objected to the production of their personal federal
tax returns and did not produce them.

      In the meantime, on January 21, 2020, NAI had a subpoena duces tecum for
a deposition on written questions served on Steven R. Hardy, the certified public
accountant who prepared tax returns for the Yamins, to produce the Yamins’ tax
returns and related documents by February 15, 2020. On February 12, 2020, the
Yamins moved to quash the subpoena duces tecum served on Hardy and objected to
producing the tax returns and other documents related to the tax returns. The Yamins
objected to the following requests for production in the subpoena duces tecum:

      2. All documents provided to you from Mary Ann Yamin, Stephen M.
      Yamin Sr., Texas Black Iron, Inc. and/or any of their affiliated entities
      for the purposes of preparing tax returns for the past 5 years.

      OBJECTION: Defendants object to this request on the grounds that it
      seeks private and confidential information that is not material or
      relevant to Defendants’ net worth, which can be discovered through
      other less intrusive means.
      3. All tax returns for Mary Ann Yamin, Stephen M. Yamin Sr., Texas
      Black Iron, Inc. and/or any of their affiliated entities for the past five
      years.

      OBJECTION: Defendants object to this request on the grounds that it
      seeks private and confidential information that is not material or
      relevant to Defendants’ net worth, which can be discovered through
      other less intrusive means.

      6. All other documents provided to you by Mary Ann Yamin, Stephen
      M. Yamin Sr., Texas Black Iron, Inc. and/or any of their affiliated
      entities for the past 5 years.

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      OBJECTION: To the extent this request seeks documents concerning
      Defendants’ tax returns or the preparation of their tax returns,
      Defendants object to this request on the grounds that it seeks private
      and confidential information that is not material or relevant to
      Defendants’ net worth, which can be discovered through other less
      intrusive means.

      7. All correspondences between your office and Mary Ann Yamin,
      Stephen M. Yamin Sr., Texas Black Iron, Inc. and/or any of their
      affiliated entities for the past five years.

      OBJECTION: To the extent this request seeks documents concerning
      Defendants’ tax returns or the preparation of their tax returns,
      Defendants object to this request on the grounds that it seeks private
      and confidential information that is not material or relevant to
      Defendants’ net worth, which can be discovered through other less
      intrusive means.

      On February 13, 2020, Hardy produced the documents to which no objection
had been made, and the Yamins had no objections to the deposition questions. On
April 7, 2020, the trial court overruled the Yamins’ objections, denied the Yamins’
motion to quash, and ordered Hardy to produce the tax returns and related documents
within seven business days of the order.

      The Yamins filed this mandamus proceeding, asking this court to compel the
trial court to set aside its April 7, 2020 order and enter an order sustaining the
Yamins’ objections to the production of their federal income tax returns and related
documents and granting the Yamins’ motion to quash the subpoena duces tecum
served on Hardy.

                                           4
                                STANDARD OF REVIEW

      Generally, a relator seeking mandamus relief must demonstrate that (1) the
trial court clearly abused its discretion; and (2) the relator has no adequate remedy
by appeal. In re Dawson, 550 S.W.3d 625, 628 (Tex. 2018) (orig. proceeding) (per
curiam). A trial court clearly abuses its discretion if it reaches a decision so arbitrary
and unreasonable as to amount to a clear and prejudicial error of law or if it clearly
fails to analyze the law correctly or apply the law correctly to the facts. In re H.E.B.
Grocery Co., L.P., 492 S.W.3d 300, 302–03 (Tex. 2016) (orig. proceeding) (per
curiam); In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382 (Tex. 2005) (orig.
proceeding) (per curiam).

      Courts are to assess the adequacy of an appellate remedy by balancing the
benefits of mandamus review against the detriments. In re Team Rocket, L.P., 256
S.W.3d 257, 262 (Tex. 2008) (orig. proceeding). Because this balancing depends in
large measure on the circumstances presented, courts look to principles rather than
simple rules that treat cases as categories. In re McAllen Med. Ctr., Inc., 275 S.W.3d
458, 464 (Tex. 2008) (orig. proceeding). Whether an appeal amounts to an adequate
remedy depends heavily on the circumstances. In re Garza, 544 S.W.3d 836, 840
(Tex. 2018) (orig. proceeding) (per curiam). Mandamus review may be necessary
to prevent the loss of substantive or procedural rights. In re Reece, 341 S.W.3d 360,
374 (Tex. 2011) (orig. proceeding). Appeal is not an adequate remedy when the
appellate court would not be able to cure the trial court’s discovery error. In re Dana
Corp., 138 S.W.3d 298, 301 (Tex. 2004) (orig. proceeding) (per curiam).

                                            5
                                     ANALYSIS

I.    The Yamins’ request for relief is not moot.

      As an initial matter, we address NAI’s assertion that the Yamins’ request for
relief is moot. Rather than file a response to the petition, NAI informed this court
that it had withdrawn the subpoena duces tecum served on Hardy to the extent that
it sought information responsive to Request for Production Nos. 2, 3, 6, and 7. NAI
advised the Yamins by email that it would “be notifying the court of appeals shortly”
that the petition is moot. The Yamins do not agree with NAI’s assessment that the
petition is moot.

      An appellate court is prohibited from deciding moot controversies. Nat’l
Collegiate Athletic Ass’n v. Jones, 1 S.W.3d 83, 86 (Tex. 1999). This prohibition is
rooted in the separation of powers doctrine in the United States and Texas
Constitutions that prohibits courts from rendering advisory opinions. Id. A case
becomes moot if at any stage there ceases to be an actual controversy between or
among the parties as to the subject matter of the litigation. Id. Generally, an appeal
is moot when the court’s action on the merits cannot affect the rights of the parties.
VE Corp. v. Ernst & Young, 860 S.W.2d 83, 84 (Tex. 1993).

      NAI posits that it would have to re-subpoena Hardy, and the trial court would
have to re-compel production in this litigation for the Yamins to be placed in a
position of opposing the same discovery requests. NAI asserts that there is no
reasonable expectation that the Yamins will be subject to the same action for a
second time in the underlying proceedings.

                                          6
       NAI has not notified the trial court that it has withdrawn the subpoena duces
tecum or asked the trial court to set aside the April 7, 2020 order, and the order
remains in effect. From the statements in NAI’s filings in this court on the matter,
it is apparent that NAI does not intend to request the trial court to withdraw the order.
We hold that, as long as the order remains in effect, the Yamins’ request for relief is
not moot. See In re Komatsu America Corporation, No. 14-11-00883-CV, 2011 WL
6209487, at *1 (Tex. App.—Houston [14th Dist.] Dec. 8, 2011, orig. proceeding)
(mem. op.) (holding petition was not moot, even though plaintiff had filed in trial
court motion to withdraw discovery order, because trial court’s order was still in
effect).

II.    The Yamins’ objections to production of Their tax returns were timely.

       In its response to the Yamins’ motions to quash, NAI contended that, under
Rule 200.3 of the Texas Rules of Rules of Civil Procedure, the objections to the
subpoenas were due within ten days following the January 21, 2020 service of the
deposition on written questions and subpoena duces tecum, but the Yamins waited
until February 12, 2020 to object. See Tex. R. Civ. P. 200.3(b) (“Within ten days
after the notice and direct questions are served, any party may object to the direct
questions and serve cross-questions on all other parties.”). Therefore, according to
NAI, the Yamins’ objections were untimely and, thus, waived.

       The Yamins argue that their objections to the subpoena duces tecum and the
production of their tax returns and related documents were timely because the
subpoena duces tecum set the due date as February 15, 2020. The Yamins contend
that Rule 200.3(b), upon which NAI relied in support of its position that the Yamins’
objections were untimely, is not applicable here. Rule 200.3 provides, in relevant
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part, that “[w]ithin ten days after the notice and direct questions are served, any party
may object to the direct questions and serve cross-questions on all other parties.” Id.
The Yamins posit that Rule 200.3(b) governs the timing for making objections to
questions to be propounded to the witness in a deposition on written questions, not
the timing for objections to requests for documents. The Yamins did not object to
any of the questions propounded to Hardy and, therefore, assert that Rule 200.3(b)
is not applicable here.

      Rule 200.1 provides the procedure for noticing a deposition upon written
question. See Tex. R. Civ. P. 200.1(b). It provides that “[t]he notice also may
include a request for production of documents as permitted by Rule 199.2(b)(5), the
provisions of which will govern the request, service, and response.” Id. Rule
199.2(b)(5) provides:

      A notice may include a request that the witness produce at the
      deposition documents or tangible things within the scope of discovery
      and within the witness’s possession, custody, or control. If the witness
      is a nonparty, the request must comply with Rule 205 and the
      designation of materials required to be identified in the subpoena must
      be attached to, or included in, the notice. The nonparty’s response to
      the request is governed by Rules 176 and 205. When the witness is a
      party or subject to the control of a party, document requests under this
      subdivision are governed by Rules 193 and 196.
Tex. R. Civ. P. 199.2(b)(5). Thus, such a request for documents from a nonparty is
governed by Rule 176, and a request from a witness subject to the control of a party
is governed by Rules 193 and 196. Id.

      Rule 176.6(d) provides that the person commanded to produce documents
may serve written objections “before the time specified for compliance.” Tex. R.

                                           8
Civ. P. 176.6(d). Under Rule 193.2, a party must make an objection to written
discovery in writing “within the time for response” Tex. R. Civ. P. 193.2. Thus, the
Yamins contend that either under Rule 176.6 or Rule 193.2 objections are timely if
made before the time for the response. The subpoena stated: “RECORDS NEEDED
BY 2/15/20.” The Yamins made their objections on February 12, 2020, before
Hardy was required to produce the tax returns and documents related to the returns.
The Yamins’ objections were timely.3

III.   The trial court abused its discretion.

       Generally, in cases concerning the production of financial records, the burden
to show the documents are not subject to discovery rests on the party seeking to
prevent production. In re Jacobs, 300 S.W.3d 35, 40 (Tex. App.—Houston [14th
Dist.] 2009, orig. proceeding [mand. dism’d]).                  However, the party seeking
discovery of tax returns has the burden of showing that they are relevant and material
to the issues in the case. In re Defy Int’l, LLC, No. 14-19-00553-CV, 2019 WL
6317725, at *3 (Tex. App.—Houston [14th Dist. Nov. 26, 2019, orig. proceeding)
(mem. op.); In re Croft, No. 14-10-00106-CV, 2010 WL 3721870, at *2 (Tex.
App.—Houston [14th Dist.] Sept. 22, 2010, orig. proceeding) (mem. op.); see also
Hall v. Lawlis, 907 S.W.2d 493, 494 (Tex. 1995) (original proceeding) (per curiam)
(“Income tax returns are discoverable to the extent they are relevant and material to
the issues presented in the lawsuit.”).

       3
          Rule 196.2(a), which applies to a witness subject to the control of a party, provides that
“[t]he responding party must serve a written response on the requesting party within 30 days after
the service of the request.” Tex. R. Civ. P. 196.2(a). The response was served within 30 days after
service of the requests and, therefore, was timely. Id.
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      The Supreme Court of Texas has expressed its “reluctance to allow
uncontrolled and unnecessary discovery of federal income tax returns.” Defy Int’l,
LLC, 2019 WL 6317725, at *3 (citing Hall v. Lawlis, 907 S.W.2d 493, 494–95 (Tex.
1995) (orig. proceeding)). Tax returns are treated differently from other discovery
requests of financial matter because federal income tax returns are considered
private and protection of that privacy is determined to be of constitutional
importance. In re Brewing Leasing, Inc., 255 S.W.3d 708, 714 (Tex. App.—
Houston [1st Dist.] 2008, orig. proceeding [mand. denied.]) (citing Maresca v.
Marks, 362 S.W.2d 299, 301 (Tex. 1962) (orig. proceeding)).

      A trial court abuses its discretion by ordering production of tax returns without
a showing of relevance in the case. Defy Int’l, LLC, 2019 WL 6317725, at *3; see
also Hall, 907 S.W.2d at 495 (holding that the trial court abused its discretion by
ordering the production of tax returns where the requesting party offered no
explanation as to how the tax returns were relevant to their claims.). Tax returns are
not subject to discovery if the relevant information sought through the returns can
be obtained from another source such as a financial statement. In re ClearVision
Techs., No. 07-16-00210-CV, 2016 WL 3452760, at *2 (Tex. App.—Amarillo June
21, 2016, orig. proceeding) (mem. op.); Croft, 2010 WL 3712870, at*2; In re House
of Yahweh, 266 S.W.3d 668, 674 (Tex. App.—Eastland 2008, orig. proceeding).
The requesting party must show that the relevant information sought cannot be
obtained from another source. Defy Int’l, LLC, 2019 WL 6317725, at *3; see also
Sears, Roebuck & Co. v. Ramirez, 824 S.W.2d 559, 559 (Tex. 1992) (orig.
proceeding) (per curiam) (holding that discovery of tax returns was unnecessarily
duplicative because information had been produced in other documents).

                                         10
Mandamus is available to review an order compelling the production of tax returns.
See Defy Int’l, LLC, 2019 WL 6317725, at *4.

      The Yamins state that they produced their financial statements and records
supporting the entries on the financial statements and responded to other net worth
discovery, including interrogatories and requests for production. In response to the
Yamins’ objections in the trial court, NAI argued that the tax returns are necessary
to determine net worth. NAI contended that the information from the tax returns and
related documents can be used to verify the Yamins’ discovery responses related to
net worth and to authenticate unaudited financial statements.

      By NAI’s own admission, it has received net worth information for the
Yamins and, therefore, it has not shown that it cannot obtain the Yamins’ net worth
information from sources other than the Yamins’ tax returns and documents related
to the returns. See Croft, 2010 WL 3721870, at *2 (holding real party in interest had
not demonstrated that he could not obtain information he sought in tax returns from
another source where he admitted that he could obtain information from other
financial documents and such documents were relevant). NAI has failed to show
that it cannot obtain the information from another source. The trial court abused its
discretion by ordering the Yamins to produce their tax returns and related
documents.

IV.   The Yamins do not have an adequate remedy by appeal.

      Having held that the trial court abused its discretion by compelling production
of the Yamins’ tax returns and related documents, we must determine whether the
Yamins have an adequate remedy by appeal. The Yamins have the right to not

                                         11
produce their tax returns when NAI has not met its burden to demonstrate that it
cannot obtain the information from other sources. See Reece, 341 S.W.3d 360, 374
(Tex. 2011) (orig. proceeding) (explaining that mandamus review may be necessary
to prevent loss of substantive or procedural rights). The trial court’s error in
compelling production of the Yamins’ tax returns and related documents cannot be
cured on appeal.     See Dana Corp., 138 S.W.3d 298, 301 (Tex. 2004) (orig.
proceeding) (per curiam). We conclude that the Yamins do not have an adequate
remedy by appeal. See Defy Int’l, L.L.C., 2019 WL 6317725, at *4.

                                    CONCLUSION

      We hold that the trial court abused its discretion by ordering the Yamins’ to
produce their tax returns and related documents and the Yamins do not have an
adequate remedy by appeal. Accordingly, we conditionally grant the Yamins’
petition for writ of mandamus and direct the trial court to vacate its April 7, 2020
order compelling production of the Yamins’ tax returns and related documents. The
writ will issue only if the trial court fails to act in accordance with this opinion. We
lift our stay issued on April 16, 2020.

                                          /s/    Tracy Christopher
                                                 Justice

Panel consists of Chief Justice Frost and Justices Christopher and Jewell.

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