Court Opinion

ID: 2870634
Source: CourtListenerOpinion
Date Created: 2015-09-06 03:50:36.988116+00
Date Added: 2024-06-11T11:31:53.362931
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                       NO. 03-06-00741-CV

                                     In re Eleanor P. Sullivan

                    ORIGINAL PROCEEDING FROM BASTROP COUNTY

                                           OPINION

               Relator Eleanor P. Sullivan filed a petition for writ of mandamus challenging the trial

court’s order compelling her to produce portions of certain federal income tax returns. We

conditionally grant the writ.

               This original proceeding arises from a suit filed by the State seeking condemnation

of approximately two acres owned by Sullivan along U.S. 290 in Bastrop County, where she operates

a business, Highway 290 RV Park. The special commissioners awarded Sullivan $396,000 as just

compensation. The State objected to this amount and, on March 31, 2006, served requests for

production seeking an array of documents relating to the property, including appraisals and other

estimations of value, statements reflecting income and expenses derived from the property and/or

the RV park, and, in request no. 5, “[f]ederal income tax return statements that relate to the RV park

for . . . 2003, 2004, 2005.” The record reflects that Sullivan produced documents in response to the

requests except for no. 5, to which she objected as overly broad, harassing, “seek[ing] information

that is protected by Defendant’s rights of privacy and seek[ing] privileged and proprietary

information,” “duplicative of information sought in other Requests,” and lacking any showing by
the State “that it is unable to obtain the requested information through less intrusive means.” On

June 7, the State moved to compel production of the information requested in no. 5. A hearing was

held on October 16. On October 25, the trial court signed an order granting the State’s motion and

compelling production of the tax returns on November 15 (a date chosen to afford Sullivan the

opportunity to submit additional authority for reconsideration). The court also ordered that the

returns “may be redacted to reveal only those portions . . . that pertain to the income derived and

expenses incurred in Ms. Sullivan’s operation of the Hwy. 290 R.V. Park.” On November 21, the

trial court signed an order denying Sullivan’s motion for reconsideration, upholding its prior order

compelling discovery of the redacted tax returns, and ordering production on November 29. Sullivan

subsequently filed this proceeding with a motion for temporary emergency relief. We granted

Sullivan’s motion for temporary relief, staying production of the tax returns pending our resolution

of the petition for mandamus. See Tex. R. App. P. 52.10.

               The Texas Supreme Court has long cautioned us 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);1 see Hall v. Lawlis, 907
S.W.2d 493, 494 (Tex. 1995) (orig. proceeding) (income tax returns are discoverable to extent that

they are relevant and material to issues presented in lawsuit); Sears, Roebuck & Co. v. Ramirez, 824

       1
        The supreme court emphasized that the protection of this privacy interest “is of
fundamental—indeed of constitutional importance.” Id.

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S.W.2d 558, 559 (Tex. 1991) (orig. proceeding) (issuance of mandamus was “guided by our

reluctance to allow uncontrolled and unnecessary discovery of federal income tax returns.”).

               Once an objection is asserted, the party seeking discovery of the tax returns has the

burden of showing relevance and materiality. El Centro del Barrio, Inc. v. Barlow, 894 S.W.2d 775,

779 (Tex. App.—San Antonio 1994, orig. proceeding). To meet its burden, the State submitted an

affidavit from one of its property appraisers, Randy Williams. Williams testified that to determine

fair market value of the land and improvements (which, he explained, bears upon the ultimate issue

of just compensation), “an appraiser must take into account any income earned and expenses

associated with the land and improvements.” Williams contended that Sullivan had produced

financial statements prior to the special commissioners’ hearing, also made the basis for her

appraiser’s report, that were inconsistent with the financial data she subsequently disclosed in

discovery. Williams urged that “[i]t is impossible based on the currently available information to

determine which documents . . . if any, provide an accurate depiction of the income and expenses

of the Hwy. 290 R.V. Park,” and that “[t]he only way to determine the fair market value of [the

property] is to examine the only audited2 financial statements available—Ms. Sullivan’s federal

income tax statements.”

               The State contends here that Sullivan’s federal income tax returns are relevant and

material because “the information in the tax returns presumably represents the definitive account of

the operating income and expenses associated with the property as an R.V. park,” in contrast to the

       2
         On appeal, the State clarifies that it “is not asserting that Sullivan’s federal income tax
returns have been audited,” only that it “believes that the federal income tax returns are verified.”

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“inconsistent” information Sullivan has already produced. We conclude that, at this juncture, the

trial court abused its discretion in finding that Sullivan’s federal income tax returns are material.3

                Federal income tax returns are not material if the same information can be obtained

from another source. El Centro del Barrio, Inc., 894 S.W.2d at 780; Chamberlain v. Cherry, 818
S.W.2d 201, 206 (Tex. App.—Amarillo 1991, orig. proceeding); cf. Ramirez, 824 S.W.2d at 559 (net

worth information in income tax returns was unnecessarily duplicative of previously-produced

annual reports). This limitation, as several of our sister courts have recognized, requires the

requesting party to show that whatever relevant information contained in the federal income tax

returns cannot be obtained through another source, such as interrogatories and depositions. El

Centro del Barrio, Inc., 894 S.W.2d at 780 (citing Borenstein v. Blumenfeld, 260 S.E.2d 377, 378

(Birdsong, J., concurring specially) (“Net worth, income, real estate holdings, stocks and bonds, and

other such income producing holdings can be adequately obtained through interrogatories and

depositions.”)). To show materiality, the State does little more than express frustration with the

financial information Sullivan produced in response to its first request for production and what it

claims are inconsistencies between that information and the reports Sullivan previously submitted

to the special commissioners. The State did not attempt to use (or explain why it could not use)

interrogatories, depositions, or any other discovery device to follow-up its initial discovery request

or further explore the bases for Sullivan’s calculations. On this record, we conclude that the State

is not entitled to production of Sullivan’s tax returns. See In re Doctors’ Hosp. of Laredo, 2 S.W.3d
504, 506 n.1 (Tex. App.—San Antonio 1999, orig. proceeding) (even when financial records are

       3
           We will assume without deciding that Sullivan’s tax returns contain relevant information.

                                                  4
relevant to issues in case and requested from party, privacy concerns require trial court to explore

other methods of obtaining the information); Kern v. Gleason, 840 S.W.2d 730, 738 (Tex.

App.—Amarillo 1992, orig. proceeding) (claimants required to attempt to discover relevant evidence

from other records before seeking production of income tax returns).

               The record reflects that the trial court was aware of the limits on discovery of federal

income tax returns and judiciously attempted to balance the privacy concerns underlying these limits

with the State’s need to obtain relevant, material information. Where federal income tax returns

contain relevant and material information, redaction, as the trial court ordered, may be advisable or

necessary to limit disclosure solely to that discoverable information. See, e.g., Maresca, 362 S.W.2d

at 301. But where, as here, the record does not support a finding that the requested information is

material so as to be discoverable, we must hold that the trial court abused its discretion in compelling

production of any portion of the tax returns. See In re DuPont de Nemours & Co., 136 S.W.3d 218,

223 (Tex. 2004) (court does not have discretion to analyze or apply law incorrectly).

And compelling production of the tax returns leaves Sullivan without an adequate remedy by

appeal. See Lawlis, 907 S.W.2d at 495.

               We emphasize that our ruling is based solely on the record before us and that we

express no opinion regarding whether, after additional discovery, Sullivan’s tax returns could be

shown to be material. See Kern, 840 S.W.2d at 738 (noting that if alternate source of information

proves to be incomplete, renewed request for income tax returns could be made).

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               We conditionally grant the petition for writ of mandamus and direct the trial court to

vacate its October 25, 2006 “Order Compelling Production of Documents” and November 21 Order.

The writ will issue only if the court does not comply with this opinion. See Tex. R. App. P. 52.8.

                                              Bob Pemberton, Justice

Before Justices Puryear, Pemberton and Waldrop

Filed: December 18, 2006

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