Opinion
NO. 12-16-00067-CV
04-29-2016
IN RE: VICTOR LISSIAK, JR., VICTOR LISSIAK III & RONALD GRAMBLING, RELATORS
ORIGINAL PROCEEDING
OPINION
By petition for writ of mandamus, Victor Lissiak Jr. (Lissiak), Victor Lissiak III (Lissiak III), and Ronald Grambling challenge the trial court's order compelling the production of Viewtech, Inc.'s 2014 federal tax return, its 2014 and 2015 profit and loss statements, and documents and records evidencing the transfer of any assets from Viewtech to Lissiak Consulting Engineers, L.L.C. (LCE). The real party in interest is SW Loan OO, L.P. (SWOO). We deny the petition.
The respondent is the Honorable Kerry L. Russell, Judge of the 7th Judicial District Court, Smith County, Texas.
BACKGROUND
The trial court awarded SWOO a money judgment against Lissiak. Before SWOO obtained the judgment against him, Lissiak owned an interest in Viewtech, an engineering consulting firm with approximately twenty employees. Lissiak was an active participant in Viewtech. After the judgment, Lissiak sold his interest in Viewtech to his son, Lissiak III, for $100,000, and Viewtech financed the entire purchase price.
Lissiak then filed for bankruptcy. The bankruptcy trustee believed that Lissiak fraudulently transferred his interest in Viewtech to his son and obtained an expert valuation of the interest. The author of that study valued the interest at $600,000. Viewtech produced financial documents that showed it had net earnings of more than $500,000 in the first six months of 2014. Eventually, the bankruptcy court dismissed Lissiak's bankruptcy without discharge and without prejudice to refiling the complaint that Lissiak's transfer of his interest in Viewtech was a fraudulent conveyance.
A debtor makes a fraudulent transfer, as to a creditor whose claim arose before the transfer, if the debtor fails to receive reasonably equivalent value in exchange for the transfer and the debtor is insolvent or becomes insolvent as a result of the transfer. TEX. BUS. & COM. CODE ANN. § 24.006(a) (West 2009). --------
Meanwhile, Lissiak appealed the trial court's judgment for SWOO. Because Lissiak sought to provide security based on his net worth, he also filed an affidavit of net worth as required by Texas Rule of Appellate Procedure 24.2(c)(1). In his affidavit, however, Lissiak claimed a negative net worth. Therefore, he contended that he need not file a supersedeas bond to suspend SWOO's collection efforts during the pendency of the appeal.
SWOO filed an objection to Lissiak's affidavit and sought to depose Lissiak III and Grambling, the accountant for the Lissiaks and Viewtech. SWOO also served Lissiak III and Grambling with subpoenas duces tecum in which it sought Viewtech's 2014 federal tax return, its 2014 and 2015 profit and loss statements, and documents and records evidencing the transfer of any assets from Viewtech to LCE.
Lissiak III and Grambling filed a motion to quash the depositions, and the trial court denied the motion. Thereafter, Lissiak III and Grambling advised SWOO that they would not attend the depositions because the trial court did not order them to comply with the subpoenas. SWOO filed a motion to compel, and the trial court granted the motion. The trial court ordered Lissiak III and Grambling to attend the depositions and produce any documents responsive to SWOO's requests.
The Lissiaks and Grambling filed a petition for writ of mandamus in this court seeking relief from the trial court's order granting SWOO's motion to compel. They also filed a motion for emergency stay, which was overruled.
AVAILABILITY OF MANDAMUS
Ordinarily, mandamus will issue to correct a clear abuse of discretion where there is no adequate remedy by appeal. In re Cerberus Capital Mgmt, L.P., 164 S.W.3d 379, 382 (Tex. 2005) (orig. proceeding); Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992) (orig. proceeding). With respect to the resolution of factual matters or matters committed to the trial court's discretion, we may not substitute our own judgment for that of the trial court. Walker, 827 S.W.2d at 839. In such matters, the relator must establish that the trial court could reasonably have reached only one decision. Id. at 840. Even if the reviewing court would have decided the issue differently, it cannot disturb the trial court's decision unless it is shown to be arbitrary and unreasonable. Id. Review of a trial court's determination of the legal principles controlling its ruling is much less deferential. Id. A trial court has no discretion in determining what the law is or applying the law to the facts. Id. Consequently, a clear failure by the trial court to analyze or apply the law correctly constitutes an abuse of discretion. Id. A trial court abuses its discretion when it orders a party to produce documents beyond that permitted under our procedural rules. In re House of Yahweh, 266 S.W.3d 668, 673 (Tex. App.—Eastland 2008, orig. proceeding). The party seeking the writ of mandamus has the burden of showing that the trial court abused its discretion. In re E. Tex. Med. Ctr. Athens, 154 S.W.3d 933, 935 (Tex. App.—Tyler 2005, orig. proceeding).
Appeal is inadequate when the appellate court would not be able to cure the trial court's discovery error, such as when a trial court orders a party to produce privileged information. House of Yahweh, 266 S.W.3d at 673. Appeal is also inadequate when a trial court erroneously compels production of individual tax returns. See Hall v. Lawlis, 907 S.W.2d 493, 495 (Tex. 1995).
THE TRIAL COURT'S ORDER
In their mandamus petition, the Lissiaks and Grambling contend that the requested documents from Viewtech are irrelevant to the supersedeas bond issue. Thus, their argument continues, the trial court abused its discretion when it compelled Lissiak III and Grambling to produce the documents. Additionally, In a document entitled "Relators' Reply to SWOO's Response to Petition to Set the Record Straight," the Lissiaks and Grambling assert that their petition for writ of mandamus has become moot because they have produced the 2014 documents responsive to SWOO's requests. However, SWOO requested other Viewtech documents as well. Therefore, the mandamus petition is not moot. Applicable Law
We allow the discovery of income tax returns because the pursuit of justice between litigants outweighs the privacy right in the documents. Maresca v. Marks, 362 S.W.2d 299, 301 (Tex. 1962) (orig. proceeding). However, because of the privacy right involved, courts must limit the discovery of income tax returns to only those portions of the returns that are relevant and material. Id. If the same information is obtainable from other sources, courts should protect the privacy right. House of Yahweh, 266 S.W.3d at 674. But a party may obtain financial documents from a corporation, including corporate tax returns, when the information is relevant and material. See In re Brewer Leasing, Inc., 255 S.W.3d 708, 712 (Tex. App.—Houston [1st Dist.] 2008, orig. proceeding [mandamus denied]). Analysis
SWOO contends that the trial court should consider whether Lissiak committed a fraudulent transfer of his interest in Viewtech to his son. Further, SWOO contends that whether Viewtech is considered an asset of Lissiak has an effect on Lissiak's supersedeas bond, and thus, is relevant. SWOO argues that the requested information from Viewtech bears on (1) whether Lissiak fraudulently conveyed his interest in Viewtech and (2) the value that Lissiak should have placed on Viewtech in his affidavit of net worth. SWOO certainly presented a legitimate argument that Lissiak failed to receive fair value when he transferred his ownership interest in Viewtech to his son. SWOO further presented argument that Viewtech's earnings should be considered in providing a proper valuation of the company.
Additionally, SWOO raised two other potential, relevant bases for obtaining the tax returns and other documents from Viewtech. First, SWOO claimed that Viewtech's 2014 tax return would provide details regarding the transfer of Lissiak's interest in Viewtech to his son. Second, SWOO claimed that the other requested financial documents would show whether assets were transferred from Viewtech to LCE. SWOO claimed that Lissiak started LCE as a replacement company for Viewtech, but did not reference an ownership interest in LCE in his affidavit of net worth. SWOO further asserted that Viewtech's employees, equipment, and offices were transferred to LCE.
Conversely, the Lissiaks and Grambling contend that the tax return and financial information are irrelevant. In his affidavit of net worth, Lissiak claimed no ownership interest in Viewtech. He claimed that his only assets are his residence, a 24.5% ownership interest in Riverhill, L.L.C., and personal property. Because Lissiak no longer claims an ownership interest in Viewtech, the Lissiaks and Grambling argue that the trial court had no discretion to grant the motion to compel.
We disagree with the Lissiaks and Grambling. When a judgment debtor files an affidavit of net worth, a judgment creditor may conduct "reasonable discovery" concerning the judgment debtor's net worth. TEX. R. APP. P. 24.2(c)(2). We do not believe the trial court's discretion is as limited under this rule as the Lissiaks and Grambling claim. The Lissiaks and Grambling's reliance on cases involving the production of individual income tax returns on the issue of net worth are misplaced. Here, Viewtech's tax return considers income and expenses, unlike an individual's income tax return, which only reports income. Thus, SWOO can use Viewtech's tax returns to have an expert analysis performed to determine the value of the company. Additionally, Viewtech's tax returns do not include much of the private and irrelevant information that is a part of an individual's income tax return, such as tax deductions, credits, and family information. Therefore, this is not a situation where the trial court compelled the disclosure of irrelevant and private information. Additionally, Viewtech's financial documents are relevant to a determination of Lissiak's net worth.
We agree with SWOO that the requested discovery has the potential to lead to relevant evidence. Accordingly, we hold that the trial court did not abuse its discretion when it ordered Lissiak III and Grambling to produce Viewtech's 2014 federal tax return, its 2014 and 2015 profit and loss statements, and documents and records evidencing the transfer of any assets from Viewtech to LCE.
DISPOSITION
Having found that the trial court did not abuse its discretion, we deny the petition for writ of mandamus.
BRIAN HOYLE
Justice Opinion delivered April 29, 2016.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(PUBLISH)
JUDGMENT
ORIGINAL PROCEEDING
ON THIS DAY came to be heard the petition for writ of mandamus filed by VICTOR LISSIAK, JR., VICTOR LISSIAK III & RONALD GRAMBLING, who are the relators in Cause No.12-0384-A, pending on the docket of the 7th Judicial District Court of Smith County, Texas. Said petition for writ of mandamus having been filed herein on March 9, 2016, and the same having been duly considered, because it is the opinion of this Court that a writ of mandamus should not issue, it is therefore CONSIDERED, ADJUDGED and ORDERED that the said petition for writ of mandamus be, and the same is, hereby DENIED.
Brian Hoyle, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.