In re Vaughan

IN RE JEFFREY R. VAUGHAN

NUMBER 13-18-00541-CV

COURT OF APPEALS THIRTEENTH DISTRICT OF TEXAS CORPUS CHRISTI - EDINBURG

February 27, 2019

On Petition for Writ of Mandamus.

MEMORANDUM OPINION

Before Chief Justice Contreras and Justices Benavides and Longoria

Memorandum Opinion by Justice Benavides¹

Through this original proceeding, relator Jeffrey R. Vaughan seeks to avoid the production of documents pertaining to his net worth in a post-judgment proceeding under Texas Rule of Appellate Procedure 24. See generally TEX. R. APP. P. 24 (governing the suspension of enforcement of judgments pending appeal in civil cases). We conditionally grant the petition for writ of mandamus in part and deny it in part.

I. BACKGROUND

Raul Medina obtained a judgment against Vaughan in a case involving breach of a promissory note. Vaughan appealed that judgment in our pending appellate cause number 13-18-00266-CV, Jeffrey R. Vaughan v. Raul Medina and Law Office of Raul Medina, P.C. Pursuant to Texas Rule of Appellate Procedure 24, Vaughan filed a motion in the trial court to set a bond for the appeal. See generally id. In his motion, Vaughan stated that his net worth was "zero" and requested that the bond be set at the "nominal" amount of $1,000.00. Vaughan asserted that he "owns no real estate, stocks, bonds or assets other than the furniture and equipment of his law office which are tools of his trade as a lawyer." He supported his motion to set bond with a two-page "Personal Financial Statement" and accompanying affidavit stating that the information in the financial statement was "true and correct." See id. R. 24.2(c)(1).

Medina filed a contest to Vaughan's motion to set bond. See id. R. 24.2(c)(2). Medina alleged, inter alia, that Vaughan had paid his trial counsel, George Bishop, more than $100,000 in attorney's fees and that Vaughan was "hiding resources" to "avoid his obligations." Medina requested that the trial court set the contest for hearing after Vaughan had adequately responded to post-judgment discovery.

Medina then propounded post-judgment requests for production and inspection to Vaughan. The requests for production and inspection sought fourteen categories of documents, including the three categories of financial documents that are at issue here: (1) tax returns for Vaughan and his two law firms, Vaughan Law Firm, P.C. and Law Office of Jeffrey R. Vaughan, P.C.; (2) 1099 forms issued by or to these law firms; and (3) Interest on Lawyer Trust Account (IOLTA) bank statements for the two firms. Theserequests for production or inspection were temporally limited in scope from 2012 to present.

Vaughan filed a response to Medina's requests for production and inspection asserting multiple objections; however, Vaughan did not produce any documents in response to Medina's requests.²

Medina filed a motion to compel responses to his requests for production and inspection. The trial court held a non-evidentiary hearing on Medina's motion to compel. At the hearing, Medina argued that Vaughan was the sole owner of both of his law firms and had control over the law firms' assets. Medina asserted that Vaughan had been in "heavy debt" since 2012. Medina also argued that Bishop testified in deposition that Vaughan had paid Bishop approximately $103,000 for defending him in the underlying lawsuit, and that Medina did not believe that Vaughan was "disclosing all of his assets because nobody goes in and spends over $100,000 on attorney's fees on a $300,000 note." Medina further presented argument that production of the IOLTA statements would indicate the presence of attorney's fees payable to Vaughan. Vaughan argued, in contrast, that the documents were not discoverable and that he had paid Bishop only $58,000.

By order signed on September 9, 2018, the trial court sustained some of Vaughan's objections and overruled others. The trial court sustained Vaughan's objections to requests for production numbered 3-8, which generally sought the production of lists of pending cases and settled cases, including the amount of grossattorney's fees generated in each case, and lists of employees for each law firm. The court overruled in part and sustained in part Vaughan's objections to requests for production numbered 1-2 and 9-14 and ordered Vaughan to respond to these requests in part. The court's order required Vaughan to produce: all federal and state income-reporting documents, including tax returns with all schedules and amendments, whether personal or for the law firms; all 1099 forms issued by or to the law firms; and all IOLTA bank statements for the law firms. The trial court's order limited the scope of production "from January 2015 to the present."

This original proceeding ensued. By one issue, Vaughan argues that the trial court abused its discretion in ordering the production of "confidential and privileged business records that have no bearing on the issue of relator's net worth." In two sub-issues, he specifically asserts that (1) Medina failed to meet his burden to show that Vaughan's tax returns were relevant and material to net worth, and (2) IOLTA bank statements and 1099 forms have no relevance to net worth because they "show funds going out, not assets."³

The Court requested and received a response to the petition from Medina. Medina argued that Vaughan "put his net worth into question" by filing a motion to reduce bond under Rule 24.2(a)(1)(A). See generally id. R. 24.2. Medina further contended that the two law firms were assets owned by Vaughan and that Vaughan generated income from these firms, "thus making them relevant and material to the issue of his net worth." Medina argued that it was "inconceivable how someone who claims [he] has no assetscan pay in excess of $100,000 in attorney's fees, excluding expert fees and litigation expenses." In seeking the discovery, Medina emphasized the factual discrepancy between the testimony of Vaughan's lawyer, Bishop, who had testified that Vaughan paid him more than $100,000, and Vaughan's assertions that he had paid Bishop a far less substantial sum.

II. STANDARD FOR MANDAMUS

To obtain relief by writ of mandamus, a relator must establish that an underlying order is void or a clear abuse of discretion and that no adequate appellate remedy exists. In re Nationwide Ins. Co. of Am., 494 S.W.3d 708, 712 (Tex. 2016) (orig. proceeding); 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, 839-40 (Tex. 1992) (orig. proceeding). An abuse of discretion occurs when a trial court's ruling is arbitrary and unreasonable or is made without regard for guiding legal principles or supporting evidence. In re Nationwide, 494 S.W.3d at 712; Ford Motor Co. v. Garcia, 363 S.W.3d 573, 578 (Tex. 2012). A trial court abuses its discretion when it fails to analyze or apply the law correctly or apply the law correctly to the facts. In re Nationwide, 494 S.W.3d at 712; In re H.E.B. Grocery Co., 492 S.W.3d 300, 302 (Tex. 2016) (orig. proceeding) (per curiam).

We determine the adequacy of an appellate remedy by balancing the benefits of mandamus review against the detriments. In re Essex Ins. Co., 450 S.W.3d 524, 528 (Tex. 2014) (orig. proceeding); In re Prudential Ins. Co. of Am., 148 S.W.3d at 136. In deciding whether the benefits of mandamus outweigh the detriments, we weigh the public and private interests involved, and we look to the facts in each case to determine the adequacy of an appeal. In re United Servs. Auto. Ass'n, 307 S.W.3d 299, 313 (Tex. 2010)(orig. proceeding); In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, 469 (Tex. 2008) (orig. proceeding); In re Prudential Ins. Co. of Am., 148 S.W.3d at 136-37.

A trial court abuses its discretion when it orders discovery that exceeds the scope permitted by the rules of procedure. In re N. Cypress Med. Ctr. Operating Co., Ltd., 559 S.W.3d 128, 130-31 (Tex. 2018) (orig. proceeding); In re CSX Corp., 124 S.W.3d 149, 152 (Tex. 2003) (orig. proceeding) (per curiam). A discovery order that compels production beyond the rules of procedure is an abuse of discretion for which mandamus is the proper remedy. In re Nat'l Lloyds Ins. Co., 507 S.W.3d 219, 223 (Tex. 2016); In re Deere & Co., 299 S.W.3d 819, 820 (Tex. 2009) (orig. proceeding) (per curiam); In re Weekley Homes, L.P., 295 S.W.3d 309, 322 (Tex. 2009) (orig. proceeding).

III. SCOPE OF DISCOVERY

The trial court generally has discretion to determine the scope of discovery. In re Nat'l Lloyds Ins. Co., 532 S.W.3d 794, 802 (Tex. 2017) (orig. proceeding); Dillard Dep't Stores, Inc. v. Hall, 909 S.W.2d 491, 492 (Tex. 1995) (orig. proceeding). Parties may seek discovery regarding any matter that is not privileged and that is relevant to the subject matter of the pending action, even if it would be inadmissible at trial, as long as the information sought is reasonably calculated to lead to the discovery of admissible evidence. See TEX. R. CIV. P. 192.3(a); In re Nat'l Lloyds Ins. Co., 507 S.W.3d at 223-24. 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. What is "relevant to the subject matter" is to be broadly construed. In re Nat'l Lloyds Ins. Co., 449 S.W.3d 486, 488 (Tex. 2014) (orig. proceeding) (per curiam). Nevertheless, discovery requests must be reasonably customized toinclude only those matters relevant to the case. In re Nat'l Lloyds Ins. Co., 507 S.W.3d at 223; Texaco, Inc. v. Sanderson, 898 S.W.2d 813, 815 (Tex. 1995) (orig. proceeding).

IV. NET WORTH

As stated previously, Vaughan filed a motion to set a bond for appeal in the nominal amount of $1,000.00 on grounds that his net worth was zero. Medina contested Vaughan's net worth, which entitled him to "conduct reasonable discovery concerning the judgment debtor's net worth." TEX. R. APP. P. 24.2(c)(2); see TEX. R. CIV. P. 621a (ad...