NUMBER 13-12-00619-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI - EDINBURG
IN RE DANIEL E. ARNOLD
On Petition for Writ of Mandamus
MEMORANDUM OPINION
Before Chief Justice Valdez and Justices Benavides and Perkes
Memorandum Opinion by Chief Justice Valdez1
By petition for writ of mandamus, Daniel E. Arnold seeks to quash the deposition
of his accountant, Jim Spence, and to avoid the discovery of federal income tax returns
and net worth. We conditionally grant in part and deny in part the petition for writ of
mandamus as stated herein.
I. BACKGROUND
This is a negligence and premises liability case. Gerardo Gonzalez was
seriously injured in the course and scope of his employment with AW Produce, Inc.
1
See TEX. R. APP. P. 52.8(d) (“When denying relief, the court may hand down an opinion but is
not required to do so.”); TEX. R. APP. P. 47.4 (distinguishing opinions and memorandum opinions).
(“AW Produce”), a produce distribution company, when his arm was entangled in an
operating conveyor belt resulting in a de-gloving injury.2 Gonzalez lost the use of his
arm. The accident occurred at a warehouse facility or “shed” located at 2300 Vo-Tech
in Mercedes, Texas. Arnold is the owner of the real property and warehouse and is the
president and “employee” of AW Produce. Arnold also owns and operates several other
businesses operating from the property, including AW Produce, Arnold Realties, and
Daniel Arnold Farms. The record before the Court does not include documentation
regarding whether each of these businesses were formally incorporated.
Subsequent to the injury, Gonzalez received workers compensation benefits from
AW Produce and brought suit against Arnold, L & M Companies, Inc. (“L & M”), Meco
Ventures, Inc., and Stephen W. Miller for premises liability, respondeat superior,
negligence, and gross negligence. According to the live petition at the time of the ruling
herein,3 Gonzalez could neither extract his arm from the conveyor belt nor immediately
turn off the machine. Gonzalez alleged that it took an extended period of time to turn off
the machines because of the way they had been set up on the premises and his injuries
were “caused and exacerbated by the dangerous layout and condition of the premises.”
2
Counsel for Gonzalez described Gonzalez’s injuries as “a degloving injury where all of the . . .
muscle, tissue, nerves, [were] ripped off and the bones were cracked in half.”
3
Gonzalez presented both his first amended original petition and his second amended original
petition in his response to the petition for writ of mandamus. The second amended petition was not
before the trial court at the time of the hearing on the motion to quash or the order at issue herein, and we
do not consider it in this proceeding. See In re Taylor, 113 S.W.3d 385, 392 (Tex. App.—Houston [1st
Dist.] 2003, orig. proceeding) (stating that, in mandamus proceedings, we "focus on the record that was
before the trial court" and exclude from our consideration filings "that were not part of the trial court record
at the time of the hearing on the motion that is the subject of the original proceeding"). In any event,
neither the first nor the second amended petitions sues any of the defendants under the provisions of
Texas Rule of Civil Procedure 28 regarding assumed or common names or asserts alter ego or any other
theory relevant to piercing the corporate veil. See TEX. R. CIV. P. 28.
2
In short, it appears that the warehouse facility was massive and the kill switch for the
conveyor belt was located a great distance away from it.
Gonzalez contended that his injuries resulted in part from substandard electrical
work directed by Arnold and L & M, and performed by Meco Ventures, Inc. and Miller.
Gonzalez alleged that Arnold and L & M owned and occupied the property and were
responsible for the dangerous layout and condition of the premises. Gonzalez further
alleged that Arnold (1) owned and operated the premises where Gonzalez was injured,
(2) had a controlling and management interest in different businesses on the property,
and (3) was not a passive landlord but instead exercised control over the premises,
fixtures, and work performed on the property.
During discovery, Gonzalez learned that another employee of AW Produce
previously had been injured when his arm was similarly caught in the conveyor belt. 4
Gonzalez deposed Arnold, who testified that he personally owned 2300 Vo-Tech but
leased the property to AW Produce by an oral, yearly lease. Arnold testified that he and
Jim Spence, the accountant for AW Produce, determined what "a fair lease agreement
would be" and determined the amount of rent payable to Arnold. Arnold also testified
that part of this oral lease agreement encompassed AW Produce taking care of "all the
repairs and maintenance and insurance." As evidence of this lease agreement, Arnold
produced the "Schedule E" attachments from his 2003, 2004, 2005, 2007, and 2008
federal tax returns, each of which indicated that Arnold received $84,000 annually in
rental income. Arnold testified that he owned the realty personally but AW Produce
owned "all of the personal property" and "everything inside the property," including the
4
If there has been any discovery establishing or refuting the degree of similarity of this previous
incident under Nissan Motor Co. v. Armstrong, 145 S.W.3d 131, 139 (Tex. 2004), that is beyond the
scope of this mandamus record.
3
machines, fixtures, and equipment, although Hidalgo County Appraisal District records
indicated "AW Produce Daniel E. Arnold" as owner. Arnold also applied for an electrical
permit regarding the subject property which identified "AW Produce/Danny Arnold" as
owner.
Although Arnold testified that he leased the property, by oral lease, to AW
Produce, Arnold also leased the property, by written lease, to L & M. The written lease
identifies the owner of the property as AW Produce rather than Arnold. Arnold admitted
this was incorrect. The lease with L & M also states that the owner of the property has
responsibility for maintenance and repair of the premises.
After Gonzalez deposed Arnold and engaged in other discovery, he noticed
Spence’s deposition and included a subpoena duces tecum that requested several
categories of documents pertaining to the property at 2300 Vo-Tech, tax returns, and
net worth. Arnold filed a motion to quash the deposition on various grounds and also
filed objections and responses to the subpoena duces tecum. Spence did not appear in
the case to file a motion for protection or otherwise object to the notice of deposition.
After an evidentiary hearing, the trial court overruled Arnold’s objections and
denied the motion to quash. This original proceeding ensued. By three issues, which
we have reordered, Arnold contends that the trial court erred by: (1) not quashing the
deposition of Arnold’s personal accountant; (2) compelling production of the complete
2010 federal income tax returns of Arnold, AW Produce, Inc., and Arnold Realty; and (3)
compelling production of net worth documents for years other than 2010 to present and
for entities not parties to the lawsuit.5 The Court requested and received a response to
5
We note that the parties have entered a confidentiality agreement regarding documents that
Arnold contends contain confidential information. See TEX. R. CIV. P. 11.
4
the petition for writ of mandamus from Gonzalez, and further received a reply thereto
from Arnold.
II. MANDAMUS
To be entitled to the extraordinary relief of a writ of mandamus, the relator must
show that the trial court abused its discretion and that there is no adequate remedy by
appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004) (orig.
proceeding); Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding).
The relator has the burden of establishing both prerequisites to mandamus relief, and
this burden is a heavy one. In re CSX Corp., 124 S.W.3d 149, 151 (Tex. 2003) (orig.
proceeding).
The scope of discovery is generally within the trial court's discretion. Dillard
Dep’t Stores, Inc. v. Hall, 909 S.W.2d 491, 492 (Tex. 1995). Parties may seek
discovery "regarding any matter that is not privileged and is relevant to the subject
matter of the pending action . . . ." TEX. R. CIV. P. 192.3(a). Information is relevant if it
tends to make the existence of a fact that is of consequence to the determination of the
action more or less probable than it would be without the information. TEX. R. EVID. 401.
However, a trial court abuses its discretion when it orders discovery exceeding the
scope permitted by the rules of procedure. In re CSX Corp., 124 S.W.3d at 152.
Mandamus relief is available when the trial court compels production beyond the
permissible bounds of discovery. In re Weekley Homes, L.P., 295 S.W.3d 309, 322
(Tex. 2009) (orig. proceeding); In re Am. Optical Corp., 988 S.W.2d 711, 713 (Tex.
1998) (orig. proceeding).
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III. DEPOSITION OF JIM SPENCE
We first examine Arnold’s contention that the trial court erred in failing to quash
Spence’s deposition based on the accountant-client privilege. Arnold cites section
901.457 of the Texas Occupation Code in support of his argument. See TEX. OCC.
CODE ANN. § 901.457 (West 2004). This section, titled "Accountant-Client Privilege,"
provides, in relevant part, the following:
(a) A license holder . . . may not voluntarily disclose information
communicated to the license holder . . . by a client in connection
with services provided to the client by the license holder . . ., except
with the permission of the client . . . .
(b) This section does not prohibit a license holder from disclosing
information that is required to be disclosed:
*****
(2) . . . under a court order if the . . . order:
(A) is addressed to the license holder;
(B) mentions the client by name; and
(c) requests specific information concerning the client . . . .
Id. We disagree with Arnold’s contentions for a variety of reasons. First, although he
identifies Spence as the accountant for AW Produce in his deposition testimony, Arnold
produced no evidence to substantiate any claim of an alleged privilege. The party who
seeks to limit discovery by asserting a privilege has the burden of producing evidence to
support its assertions. See TEX. R. CIV. P. 193.4(a), 199.6; In re E. I. DuPont de
Nemours & Co., 136 S.W.2d 218, 227 (Tex. 2004) (orig. proceeding) (holding that the
party asserting a privilege has the burden of proof and must make a prima facie
showing, which requires the "minimum quantum of evidence necessary to support a
6
rational inference that the allegation of fact is true"); Huie v. DeShazo, 922 S.W.2d 920,
926 (Tex. 1996) (stating that evidence is necessary to support a claim of privilege).
Specifically, for instance, there is no evidence in the record that Spence is a licensed
accountant or that any communications at issue were intended to be confidential.
Second, as we have stated, the existence of an accountant-client privilege based
on section 901.457 is doubtful. See In re Patel, 218 S.W.3d 911, 919–21 (Tex. App.—
Corpus Christi 2007, orig. proceeding) (“[B]ecause the law is not clear on this issue, to
the extent the trial court's denial of the motion to quash in this case was based on no
privilege, we cannot conclude it abused its discretion” in denying motion to quash). In
fact, the federal courts, even those construing this same section of the Texas
Occupations Code, reject such a privilege. See United States v. Arthur Young & Co.,
465 U.S. 805, 817 (1984) ("[N]o confidential accountant-client privilege exists under
federal law, and no state-created privilege has been recognized in federal cases.");
Canyon Partners, L.P., v. Developers Diversified Realty Corp., No. 3-04-CV-1335-L,
2005 U.S. Dist. LEXIS 26782 at *3 (N.D. Tex. Nov. 4, 2005) (mem. op.) ("The court
initially observes that there is no accountant-client privilege under federal or Texas
law.").
Third, even if we were to assume that section 901.457 created a privilege, the
instant deposition falls within the statutory exception to the privilege as a court order
directed to Spence, mentioning Arnold by name, and requesting specific information
concerning Arnold. See TEX. OCC. CODE ANN. § 901.457. And finally, even if we were
to recognize an accountant-client privilege and conclude that this matter did not fall
within the statutory exception to the alleged privilege, any such privilege would not apply
7
where the accountant was employed in a capacity other than as an accountant, such as
a negotiator. See Harlandale Indep. Sch. Dist. v. Cornyn, 25 S.W.3d 328, 332 (Tex.
App.—Austin 2000, pet. denied) (refusing to apply attorney-client privilege where
attorney was not acting in capacity as attorney).
In this case, Arnold identified Spence as the CPA for AW Produce who
represented AW Produce in deciding with Arnold regarding “[w]hat a fair lease
agreement would be.” Arnold testified that he and Spence decided how much AW
Produce would pay Arnold to lease the property. Given that (1) the lease agreement
was between Arnold in two different capacities, that is, individually and as president of
AW Produce, (2) the lease was oral rather than written, (3) the lease was allegedly
renewed on an annual basis for multiple years without a change in leasehold price, and
(4) documents and testimony in the record indicate that Arnold has affirmatively
misidentified the ownership of the property, we conclude that the request to depose
Spence is reasonably calculated to lead to the discovery of admissible evidence. See
TEX. R. CIV. P. 192.3(a); In re CSX Corp., 124 S.W.3d at 152. Spence’s actions and
knowledge regarding the ownership of the subject property are relevant to the premises
liability issues in this case and render him a fact witness subject to deposition.
Moreover, leaving these matters aside, Arnold did not file a motion for protective order
as required by Texas Rule of Civil Procedure 192.6 when discovery about a party is
sought from a nonparty. See TEX. R. CIV. P. 192.
We overrule Arnold’s issue concerning the trial court’s alleged error in allowing
Spence to be deposed.
8
IV. FEDERAL INCOME TAX RETURNS
Arnold contends that the trial court erred in compelling the production of
complete 2010 federal income tax returns for Arnold, AW Produce, and Arnold Realty.
Arnold specifically notes that neither AW Produce nor Arnold Realty is a party to this
lawsuit. As an initial matter, we note that Arnold has already produced “Schedule E”
regarding “Supplemental Income and Loss” in order to show that he personally received
$84,000 annually for rental of the property. As stated previously, Arnold owns the
property, although he has also represented that AW Produce owns it. Arnold is
president of both AW Produce and Arnold Realty. With regard to Arnold Real
Properties, Arnold testified that “there’s nothing—nothing there,” “it was nothing ever—
ever developed out of it,” it “was never [a] business,” and “there never was anything to
this business.”
Federal income tax returns are discoverable to the extent they are relevant and
material to the issues presented in the lawsuit. Hall v. Lawlis, 907 S.W.2d 493, 494–95
(Tex. 1995). Stated otherwise, tax returns may be discovered when the "pursuit of
justice between litigants outweighs protection of their privacy." Maresca v. Marks, 362
S.W.2d 299, 301 (Tex. 1962). If some, but not all, of an income tax return is
discoverable, discovery should be limited to the relevant parts. Id. (holding that the trial
court abused its discretion by ordering entire income tax returns for individuals and
corporations to be produced "without separation of the relevant and material parts from
the irrelevant and immaterial parts"). Further, tax returns may not be discovered when
they would be duplicative of other information already provided or, when sought for the
purposes of ascertaining net worth, there are other adequate methods to determine net
9
worth. Sears, Roebuck & Co. v. Ramirez, 824 S.W.2d 558, 559 (Tex. 1991) (orig.
proceeding) (per curiam); see In re Williams, 328 S.W.3d 103, 116–17 (Tex. App.—
Corpus Christi 2010, orig. proceeding); In re Brewer Leasing, Inc., 255 S.W.3d 708,
713–15 (Tex. App.—Houston [1st Dist.] 2008); In re Garth, 214 S.W.3d 190, 194 (Tex.
App.—Beaumont 2007, orig. proceeding [mand. dism’d]).
When a party objects to the production of tax returns, the party seeking to obtain
the tax returns has the burden to show that they are relevant and material to the issues
in the case. El Centro del Barrio, Inc. v. Barlow, 894 S.W.2d 775, 779 (Tex. App.—San
Antonio 1994, no writ). The burden is thus unlike general discovery requests, which
place the burden on the party resisting the discovery. See In re Patel, 218 S.W.3d at
916.
Gonzalez has the burden to show that the tax returns are discoverable. See id.
Gonzalez contends that Arnold has put the tax returns at issue by offering a portion of
his tax returns as the “sole basis” to support his contention that he leased the property
to AW Produce. Gonzalez further alleges that the returns will clarify the nature and
scope of Arnold’s business activities at 2300 Vo-Tech given that he operates several
businesses there and has refused to answer discovery in this case “in the capacity in
which he has been sued.” Finally, Gonzalez alleges that if Arnold Realty is in fact a
defunct business, there would be no federal income tax forms to be produced.
After reviewing the mandamus record and petition, we conclude that Arnold has
failed to establish an abuse of discretion by the trial court with regard to his 2010 tax
return and that of AW Produce. See, e.g., Hall, 907 S.W.2d 493, 494 (Tex. 1995)
("Income tax returns are discoverable to the extent they are relevant and material to the
10
issues presented in the lawsuit."). Arnold is utilizing a portion of his tax returns to
substantiate his claims about the ownership and rental of the property. The income tax
returns are both relevant and material regarding the ownership and control over 2300
Vo-Tech given the nature of this matter as a premises liability case, particularly given
that a prior similar accident occurred on the premises. If AW Produce paid Arnold
$84,000 annually in rentals, as evidenced by the Schedule E forms produced by Arnold,
then AW Produce’s income tax returns should similarly reflect these transactions. In
this regard, we note that the record is undisputed that Arnold owns AW Produce,
controls it, and has made affirmative misrepresentations regarding ownership of the
subject property. Moreover, the production of tax returns in this case is not duplicative
of other discovery. Further, there are no other adequate methods to examine the rental
issues given that the leasehold at issue was allegedly oral in nature.
We reach a different conclusion, however, with regard to the 2010 federal income
tax return for Arnold Realties. Gonzalez has failed to show that the tax return of Arnold
Realties is relevant or material to the subject matter at issue in this case. According to
the live pleadings, Arnold Realties is not involved in this lawsuit in any capacity, and a
request for tax returns to ascertain whether or not Arnold’s representations regarding
the status of that company are true is merely a prohibited fishing expedition. See Dillard
Dep't Stores, 909 S.W.2d at 492. The current record is devoid of any factual allegations
regarding ownership or control of Arnold Realties or any legal allegations regarding
common business enterprise or alter ego which would render discovery pertaining to
this entity relevant or material. Accordingly, Arnold’s issue is sustained in part insofar
as he contends the trial court erred in requiring the production of the 2010 tax return of
11
Arnold Realties, and denied in part regarding the 2010 tax returns of Arnold and AW
Produce.
V. NET WORTH
Finally, Arnold contends that the trial court erred in compelling production of “net
worth documents for years other than 2010 to present and for entities not parties to the
lawsuit.” Arnold’s contention is based on the transcript of the hearing on the motion to
quash rather than the written order on discovery issued after the petition for writ of
mandamus was filed.6 The written order, which is the order subject to review in this
case, compels the production of documents indicating Arnold’s net worth in 2010 and
documents indicating his present net worth.
A defendant's net worth is relevant in a suit involving exemplary damages.
Lunsford v. Morris, 746 S.W.2d 471, 473 (Tex. 1988) (orig. proceeding). Therefore, in
cases where punitive or exemplary damages may be awarded, parties may discover
and offer evidence of a defendant's net worth. Id. at 472–73; see also In re Islamorada
Fish Co. Tex., LLC, No. 05-10-344-CV, 2010 Tex. App. LEXIS 6309, at *6 (Tex. App.—
Dallas Aug. 5, 2010, orig. proceeding) (op. on reh’g) (declining to allow discovery of net
worth information because exemplary damages were not available for causes of action
pleaded). Moreover, discovery regarding net worth must be narrowly crafted to show
current net worth. In re House of Yahweh, 266 S.W.3d 668, 673 (Tex. App.—Eastland
6
It is clear that mandamus may be based upon an oral ruling. In re Nabors, 276 S.W.3d 190,
192 (Tex. App.—Houston [14th Dist.] 2009, orig. proceeding); In re Bill Heard Chevrolet, Ltd., 209 S.W.3d
311, 314 (Tex. App.—Houston [1st Dist.] 2006, orig. proceeding); In re Bledsoe, 41 S.W.3d 807, 811
(Tex. App.—Fort Worth 2001, orig. proceeding). However, an oral ruling is not subject to mandamus
review unless the ruling is clear, specific, enforceable, and adequately shown by the record. In re
Bledsoe, 41 S.W.3d at 81; In re Perritt, 973 S.W.2d 776, 779 (Tex. App.—Texarkana 1998, orig.
proceeding); see also In re Am. Power Conversion Corp., No. 04-12-00083-CV, 2012 Tex. App. LEXIS
1241, at **1–2 (Tex. App.—San Antonio Feb. 15, 2012, orig. proceeding) (per curiam mem. op.). In this
case, the trial court’s oral rulings were unclear; however, the record has been supplemented with the trial
court’s written order subject to review herein.
12
2008, orig. proceeding) (holding that the trial court erred by requiring production of
previous years’ balance sheets and other documents that did not show net worth); In re
Brewer Leasing, Inc., 255 S.W.3d at 712 (holding that a trial court abuses its discretion
by ordering the production of financial records "that would not necessarily evidence" net
worth); In re Garth, 214 S.W.3d at 192 (holding that the trial court erred by requiring
production of income statements because they would not show current net worth); see
also In re Ameriplan Corp., No. 05-09-01407-CV, 2010 Tex. App. LEXIS 31, at *2 (Tex.
App.—Dallas Jan. 6, 2010, orig. proceeding) (mem. op.) (holding that the trial court
erred in ordering the production of documents that did not show current net worth,
including income statements and old balance sheets).
In this case, Gonzalez has raised causes of action for which exemplary damages
may be awarded, and accordingly, Arnold’s current net worth is discoverable. At the
hearing on the motion to quash, Arnold stated for the record his agreement to produce
current net worth information. The trial court’s order, in contrast, required the
production of data in 2010, when Gonzalez was injured, and at the present time. We
conclude that the trial court abused its discretion in ordering the production of historical
net worth information. In re Garth, 214 S.W.3d at 192; see also In re Shaw, No. 13-10-
00487-CV, 2010 Tex. App. LEXIS 8744, at *7 (Tex. App.—Corpus Christi Oct. 27, 2010,
orig. proceeding) (“Moreover, discovery regarding net worth must be narrowly crafted to
show current net worth.”). Accordingly, we sustain Arnold’s third and final issue.
VI. CONCLUSION
The Court, having examined and fully considered the petition for writ of
mandamus, the response thereto, and the reply, is of the opinion that Arnold has shown
13
himself entitled to some relief. Accordingly, the stay previously imposed by this Court is
LIFTED. See TEX. R. APP. P. 52.10(b) (“Unless vacated or modified, an order granting
temporary relief is effective until the case is finally decided.”). We conditionally grant
mandamus relief and direct the trial court to withdraw its order requiring the production
of federal income tax returns for Arnold Realty and the production of Arnold’s historical
net worth information. We deny all other relief sought in this original proceeding. In so
ruling, we emphasize that this ruling is based solely on the pleadings and evidence that
were before the trial court and are before this Court, and we express no opinion herein
regarding the resolution of any future discovery disputes that might arise during the
conduct of this case.
__________________
ROGELIO VALDEZ
Chief Justice
Delivered and filed the
30th day of November, 2012.
14
in Re Daniel E. Arnold
Combined Opinion