in Re Brian Potashnik ( 2020 )

Denied in part, conditionally granted in part, and Opinion Filed April 22,
2020
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-19-01188-CV
IN RE BRIAN POTASHNIK, Relator
Original Proceeding from the County Court at Law No. 5
Dallas County, Texas
Trial Court Cause No. CC-08-2072-E
MEMORANDUM OPINION
Before Justices Whitehill, Partida-Kipness, and Pedersen, III
Opinion by Justice Pedersen, III
This original proceeding concerns an order granting a motion to compel
post-judgment discovery related to the setting of a supersedeas bond. Relator
Brian Potashnik complains of the trial court’s September 6, 2019 discovery order
compelling him to respond to net-worth discovery and the summary overruling of
his objections to the discovery. He contends net-worth discovery is not relevant to
his motion to set a lesser bond and that the discovery requests are overbroad. After
reviewing the petition, response, reply, and the mandamus record, we conclude
relator is entitled to some of the relief requested.
Background
On December 17, 2018, real party in interest Jeffrey Carpenter obtained a
judgment for $928,020.76 against relator and three other defendants not parties to
this petition. In an attempt to supersede the judgment, relator filed an affidavit of
net worth and a supersedeas bond pursuant to the procedure set forth in rule of
appellate procedure 24.2(c). See TEX. R. APP. P. 24.2(c). He alleged his net worth
was $429,250, and he posted a supersedeas bond in the amount of $214,625. See
TEX. CIV. PRAC. & REM. CODE ANN. § 52.006(b); TEX. R. APP. P. 24.2(a)(1)
(supersedeas bond for money judgment cannot exceed lesser of fifty percent of
judgment debtor’s current net worth or $25,000,000). After real party in interest
filed a contest to relator’s affidavit of net worth, relator filed a “Notice of Filing of
Supplemental Declaration in Lieu of Affidavit of Net Worth” that provided further
detail.
At the hearing on the contest, the trial court allowed real party in interest to
conduct net worth related discovery. Rather than respond to the discovery,
however, relator filed a “Motion to Set Lesser, Alternative Supersedeas” pursuant
to the procedure set forth in rule 24.2(b). See TEX. R. APP. P. 24.2(b). In the
motion, relator states that it is filed “in lieu of the net worth procedure.” The trial
court conducted a hearing on relator’s motion to set a lower bond. At the
conclusion of the hearing, the trial court stated it would not set a lower bond before
the net-worth discovery was completed.
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After relator refused to answer the discovery, real party in interest filed a
motion to compel. The trial court held a hearing and signed an order overruling
relator’s objections to the requested discovery and granting real party in interest’s
motion to compel. This petition for writ of mandamus followed.
Standard of Review
To be entitled to mandamus relief, the relator must show both that the trial
court clearly abused its discretion and that he has no adequate appellate remedy.
See In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004) (orig.
proceeding). An abuse of discretion occurs when a trial court’s ruling is arbitrary
and unreasonable, made without regard for guiding legal principles or supporting
evidence. In re Nationwide Ins. Co. of Am., 494 S.W.3d 708, 712 (Tex. 2016)
(orig. proceeding). Similarly, a trial court abuses its discretion when it fails to
analyze or apply the law correctly. Id.
Relator’s Objections to the Discovery
In the first two issues, relator asserts the trial court abused its discretion in
compelling the net-worth discovery because it is not relevant to his motion to set a
lesser bond. Because net-worth discovery is relevant to relator’s motion to set a
lesser bond and he continued to cite and rely upon his net worth in support of that
motion, we conclude he has not shown he is entitled to mandamus relief and deny
that portion of his petition.
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Having concluded the net-worth discovery is relevant to his motion to set a
lesser bond, we turn our attention to relator’s third issue complaining of the trial
court’s summary overruling of his objections to the discovery. Under this issue, he
asserts many of the interrogatories and production requests are not relevant to his
net worth and/or are overly broad.
1. The Law
Mandamus provides an appropriate remedy when a trial court abuses its
discretion with respect to a post-judgment discovery order. See Beilamowicz v.
Cedar Hill Indep. Sch. Dist., 136 S.W.3d 718, 723 (Tex. App.—Dallas 2004, pet.
denied). A trial court abuses its discretion if it orders discovery that exceeds the
parameters allowed by the rules of procedure. See In re Nat’l Lloyds Ins. Co., 507
S.W.3d 219, 223 (Tex. 2016) (orig. proceeding) (per curiam). Orders compelling
compliance with overly broad discovery requests are properly the subject of a
petition for writ of mandamus. See In re Graco Children’s Prods., Inc., 210
S.W.3d 598, 600 (Tex. 2006) (orig. proceeding) (per curiam).
The usual rules governing the scope of pre-trial discovery apply to post-
judgment discovery. See TEX. R. CIV. P. 621a. And, generally, the scope of
discovery is within the trial court’s discretion. See Dillard Dep’t Stores, Inc. v.
Hall, 909 S.W.2d 491, 492 (Tex. 1995) (per curiam). However, discovery may not
be used as a fishing expedition. See id. The discovery requested must be
reasonably calculated to lead to the discovery of admissible evidence. See TEX. R.
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CIV. P. 192.3(a). Discovery orders that require document production from an
unreasonably long time period are impermissibly overbroad. See In re CSX Corp.,
124 S.W.3d 149, 152 (Tex. 2003) (orig. proceeding) (per curiam).
Net worth is calculated as the difference between total assets and total
liabilities as determined by generally accepted accounting principles. See G.M.
Houser, Inc. v. Rodgers, 204 S.W.3d 836, 840 (Tex. App.—Dallas 2006, no pet.).
With respect to net-worth discovery, generally, only financial documents
pertaining to current net worth are relevant. See TEX. R. APP. P. 24.2(a)(1); In re
Jacobs, 300 S.W.3d 35, 44–45 (Tex. App.—Houston [14th Dist.] 2009, orig.
proceeding). In the context of pretrial net-worth discovery, allowed when
exemplary damages are sought, financial records are generally restricted to a
twelve-month period. See Jacobs, 300 S.W.3d at 44–45 (requests for two years’
worth of documents too broad); In re House of Yahweh, 266 S.W.3d 668, 673
(Tex. App.—Eastland 2008, orig. proceeding) (requests for balance sheets older
than current year not reflective of current net worth and too broad); In re Arpin
Am. Moving Sys., LLC, 416 S.W.3d 927, 929 (Tex. App.—Dallas 2013, orig.
proceeding) (same); In re Ameriplan Corp., No. 05-09-01407-CV, 2010 WL
22825, at *1 (Tex. App.—Dallas Jan. 6, 2010, orig. proceeding) (mem. op.)
(same). When there is an allegation of fraudulent transfers, however, broader
discovery of financial documents may be appropriate to trace the purported moving
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of assets and money to deflate net worth. See In re Williams, 328 S.W.3d 103,
118–119 (Tex. App.—Corpus Christi 2010, orig. proceeding).
Tax returns are treated differently from other types of financial records.
This is because federal income tax returns are considered private and the protection
of that privacy is of constitutional importance. See Maresca v. Marks, 362 S.W.2d
299, 301 (Tex. 1962). Thus, federal income tax returns are not material if the same
information can be obtained from another source. See In re Sullivan, 214 S.W.3d
622, 624–25 (Tex. App.—Austin 2006, orig. proceeding). And, unlike other types
of financial records, when a party objects to the production of tax returns, the
burden shifts to the party seeking the documents to show relevance and materiality.
See id. at 624.
2. Discussion
At the hearing on the motion to compel, the parties focused their attention on
whether net-worth discovery was proper. The parties did not discuss relator’s
specific objections to the requested discovery. Nor did they discuss allegations of
fraud or hiding of assets. Therefore, relevant financial documents are restricted to
a one-year period. See Williams, 328 S.W.3d at 118–119; Jacobs, 300 S.W.3d at
44–45.
The requested discovery consists of sixty-seven interrogatories and thirty
requests for production. Relator asserts the trial court abused its discretion by its
summary overruling of all of his objections to the discovery. He asserts the
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discovery is overbroad in seeking multiple years of information when the inquiry is
“current net worth” and some of it is not related to net worth. We agree, in part,
with relator.
Interrogatories concerning relator’s assets and liabilities seeking information
no further back than twelve months are relevant because they form the basis for
determining his current net worth. See Rodgers, 204 S.W.3d at 840 (net worth is
difference between assets and liabilities); Jacobs, 300 S.W.3d 44–45 (financial
records for net worth purposes generally restricted to twelve-month period);
Yahweh, 266 S.W.3d at 673 (same). We conclude interrogatory numbers 1–3, 5–
12, 16, 17, 20, 22, 25–35, 37, 40, 41, 44, 53, 58, 62, and 64–66 are relevant to
relator’s current net worth because they relate to his current assets and liabilities
and the trial court did not err in overruling his objections to them.
Conversely, we conclude interrogatory numbers 4, 13–15, 18, 19, 21, 23, 24,
36, 38, 39, 42, 43, 45–52, 54–57, 59–61, 63, and 67 are either not relevant to
relator’s net worth and/or the time frame is too broad in that it exceeds a twelve-
month period. See CSX Corp., 124 S.W.3d at 152; Jacobs, 300 S.W.3d 44–45;
Yahweh, 266 S.W.3d at 673; Rodgers, 204 S.W.3d at 840. We conclude the trial
court abused its discretion in overruling relator’s objections to these
interrogatories.
Real party in interest also served relator with thirty requests for production.
Relator responded to request for production number 24. As to the remainder of the
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requests, relator objected to them, in part, as not relevant and overly burdensome.
We conclude request for production numbers 21–23 and 25–30 are related to
relator’s net worth as they concern his currently owned assets and liabilities. The
trial court did not abuse its discretion in overruling relator’s objections to these
requests for production. See Rodgers, 204 S.W.3d at 840.
On the other hand, requests for production numbers 1, 2–11, and 13–20 do
not relate to relator’s current net worth because they seek multiple years of
documentation. See Jacobs, 300 S.W.3d at 44–45. Thus, we conclude the trial
court abused its discretion in overruling relator’s objections to them.
Request for production number 12 seeks all of relator’s federal and state
income tax returns for the years 2009 to the present. In addition to the too-broad
time frame, as noted above, because relator objected to the discovery of his tax
returns, the burden shifted to real party in interest to show that the tax returns are
both relevant and material to relator’s net worth. See Sullivan, 214 S.W.3d at 624.
Real party in interest did not respond in writing after relator filed his objections.
Moreover, counsel for real party in interest made no mention of the tax returns at
the hearing on the motion to compel the net worth discovery. Thus, we conclude
real party in interest did not meet his burden to show that the tax returns were
relevant and material and the trial court abused its discretion in overruling relator’s
objection to their production. See id.
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Conclusion
We deny the petition with respect to the order granting real party in
interest’s motion to compel net worth discovery. We conditionally grant the
petition with respect to (1) the request to produce tax returns, (2) the
interrogatories and requests for production that do not relate to net worth as
outlined above, and (3) the interrogatories and requests for production that seek
multiple years of information as outlined above. We direct the trial court to
modify its order consistent with this memorandum opinion. The trial court’s
modified order is due within thirty days of the date of this opinion. The writ will
issue only in the event the trial court fails to comply.
/Bill Pedersen, III//
BILL PEDERSEN, III
JUSTICE
191188f.p05
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