Defendant who withheld financial informatin may be forced to produce tax returns to determine liability for punitive damages

Law Reporter, Mar 2003

Weingarten v. Superior Ct., 125 Cal. Rptr. 2d 371 (Ct. App. 2002).

A California appellate court held that a defendant who was uncooperative in disclosing financial information may be required to produce tax returns to determine liability for punitive damages.

Here, Weingarten was sued for fraud relating to the development of a real estate project. Prior to trial, the trial court had granted a motion requiring defendant to identify witnesses and documents relating to her financial condition. This ruling was based upon the probability of a punitive damages award being made. Defendant produced an unverified personal financial statement and some supporting accounting statements. However, at her deposition, defendant acknowledged that the financial statement was no longer accurate. After the first phase of trial, defendant was found to have breached fiduciary duties owed to plaintiffs. The court ordered an accounting to determine the amount of damages and further found defendant guilty of malice and fraud.

Plaintiffs requested defendant's tax returns and other financial documents. Defendant objected to the production of the tax returns. Plaintiffs moved to obtain the tax returns, claiming that they could not obtain defendant's financial information any other way. Defendant asserted rights of privacy in her tax returns. The trial court ordered defendant to produce tax returns for the last two years, and limited disclosure to the parties' attorneys and experts.

Affirming in part, the appellate court noted that while there is no recognized federal or state constitutional right to the privacy of tax returns, California courts have held there is a privilege under state tax law. However, the court added, the privilege is not absolute. It can be overcome where there is a public policy that outweighs the confidentiality of the return involved.

The court said that a claim for punitive damages, standing alone, does not constitute a compelling basis for the disclosure of tax returns. Here, however, defendant was found to have acted with malice and fraud, had sole control of her financial records, and was refusing to produce relevant, nonprivileged documents. Had defendant produced, in good faith, the usual financial documents, there would have been a less compelling reason for the disclosure of tax returns, the court said.

Plaintiffs' Counsel

*Paul A. Tyrell, Frank L. Tobin, Steven M. Strauss, and David A. Niddrie, all of San Diego, Cal.