Blake v. Blake

• Decision Date: 24 January 1985
• Docket Number: 7384,Nos. 7375,s. 7375
• Citation: 1985 NMCA 9,102 N.M. 354,695 P.2d 838
• Parties: Yolanda Yvonne BLAKE, Petitioner-Appellant-Cross-Appellee, v. Michael Herbert BLAKE, Respondent-Appellee-Cross-Appellant.
• Court: Court of Appeals of New Mexico

Page 838

695 P.2d 838

102 N.M. 354

Yolanda Yvonne BLAKE, Petitioner-Appellant-Cross-Appellee, v. Michael Herbert BLAKE, Respondent-Appellee-Cross-Appellant.

Nos. 7375, 7384.

Court of Appeals of New Mexico.

Jan. 24, 1985.

James E. Snead, Steven L. Tucker, Francis J. Mathew, Charles A. Purdy, Jones, Gallegos, Snead & Wertheim, P.A., Santa Fe, for petitioner-appellant-cross-appellee

David H. Kelsey, Sanford H. Siegel, Atkinson & Kelsey, Albuquerque, Sarah M. Singleton, Santa Fe, for respondent-appellee-cross-appellant.

OPINION

BIVINS, Judge.

Plaintiff Yolanda Yvonne Blake appeals from a Supplemental Decree of Dissolution of Marriage entered August 11, 1983 disposing of the issues of child custody, child support, alimony, division and distribution of the community property and debts, and attorney fees. A final decree dissolving the marriage had previously been entered on April 25, 1983.

In her appeal wife claims trial court error as follows: (1) in denying wife discovery of the books and records of a closely held corporation in which husband has an interest; (2) in allowing the introduction of certain documentary evidence; (3) abuse of discretion in the terms provided for child support, alimony, and division of property; (4) in refusing to award wife attorney fees; (5) in determining that wife had no interest in husband's bonus for the fiscal year ending July 31, 1983; and (6) in awarding joint custody of the minor children. In his cross-appeal husband contends lack of evidence to support a finding of a community interest in certain real estate he claims as his separate property. We reverse in part and affirm in part.

This case involves substantial property interests, including community and separate holdings of husband. Wife entered the marriage with no separate estate and acquired none except for stock given her by husband's parents and gifts husband made to her during the marriage. The parties married in 1967, and had four children ranging in age from nine to thirteen. They separated in May, 1980 and wife filed her petition to dissolve the marriage in November of that year. During the almost three years from filing until entry of the supplemental decree the parties engaged in extensive discovery, including interrogatories, motions to produce and depositions. Each party received in excess of $300,000 worth of community property; however, a substantial portion of each spouse's share was set apart for child support. The court awarded wife alimony of $9,000 payable monthly over three years.

WIFE'S APPEAL

1. Discovery of the books and records of TSV

(a) Background

Husband personally controls 26% of the stock of Taos Ski Valley, Inc. (TSV) and, together with other members of the Blake family, controls 75% of the outstanding shares of the company. At all times material husband served on the board of directors of TSV as well as its executive committee. The corporation employed him as its vice-president and general manager.

Because husband's answers to the initial set of interrogatories set his monthly net income at $1,241 with no exception of any bonus for 1981, wife claims she agreed to temporary support of $1,000 a month with husband to pay the mortgage on the residence, plus gasoline for her car. Subsequently, and in response to a motion to produce, wife received copies of all federal income tax returns filed since the parties' marriage. These returns reflected that husband's earnings from TSV increased in each year from 1975 to 1980. His annual earnings included a bonus. In the spring or early summer of 1982, when wife received a copy of the 1981 tax return, she noted a marked decrease in earnings from the previous year's high of $102,950 to $52,573 in 1981. Because husband's duties had not diminished, wife contends the filing of her petition for dissolution of the marriage offers the only plausible explanation for this dramatic reduction in earnings.¹

This new information prompted wife to file a second set of interrogatories with request for production "relating to the affairs of the family corporation." The requested documentation included a demand for copies or the right to inspect TSV tax returns since the date of marriage, the corporate minute book for the same time period, the stock register book, financial statements for five years past, cash receipts and disbursement journals with supporting documentation for the past five years, and the payroll journal. Husband responded to the interrogatories but, as to the corporate books and records of TSV, he claimed to have no "possession, custody or control."

Wife filed a motion to compel discovery and to set temporary support. A hearing on this motion was vacated when husband agreed to increase support and to furnish the requested corporate records.

When wife failed to receive the corporate books and records she filed a second motion to compel, to which husband responded claiming wife's request included documents bearing no relation to these proceedings, and that he had already provided all relevant documents relating to his financial situation, including some records of TSV. Husband claimed that the president of TSV had declined to turn over the requested documents on instructions from non-Blake family directors and officers because of the "extensive and unreasonable demand" and the costs involved.

Following a hearing held in April, 1983, the trial court found that husband did not have "custody, possession or control" of the books and records of TSV, that TSV had declined to make its books and records available, and that wife's motion should be denied. See NMSA 1978, Civ.P.R. 37 (Repl.Pamp.1980).

Because wife owned thirty-five shares of TSV in her own name, she instituted a separate shareholder's suit to exercise her rights under NMSA 1978, Section 53-11-50 (Repl.Pamp.1983) (providing for examination of records). When she realized that this suit would not be heard before trial in the divorce proceedings, wife then issued a subpoena duces tecum to John A. Mitchell, president of TSV, directing him to appear for a deposition and to bring with him certain books and records of the corporation. TSV objected to the subpoena and moved to have it quashed. NMSA 1978, Civ.P.R. 45(b) (Repl.Pamp.1980). Wife moved to compel production under Civ.P. Rule 37. Following a hearing held in June, 1983, the trial court quashed the subpoena duces tecum.

On appeal wife contends that the trial court abused its discretion in denying her access to records that would have verified or disproved husband's representations concerning his earnings and earning capacity.

In addition to the sudden drop in earnings, wife points to evidence developed on cross-examination that husband maintained at one time during the marriage a savings and checking account under his former name, Michael H. Block. Husband admitted he had not previously disclosed the existence of these accounts in his answers to interrogatories. Further, on cross-examination husband discussed interest-free loans he had received from TSV which he repaid at the time he received his year-end bonus. These factors were sufficient, according to wife, to raise a suspicion that earnings had been concealed.

Both sides appear to agree that abuse of discretion is the proper standard of review and may occur only when the trial court bases its decision on an erroneous conclusion of law or where no rational basis can be found for the ruling. In re Coordinated Pretrial Proceedings, Etc., 669 F.2d 620 (10th Cir.1982). We do not consider any rights wife might have, as a shareholder of TSV, to examine the records under Section 53-11-50.

(b) General considerations

In New Mexico we have no cases dealing specifically with close-corporation discovery in a matrimonial proceeding. In this type case, the trial court faces at least two competing considerations. On the one hand, the trial court must consider the requesting party's need for information to adequately present his or her case, coupled with the court's obligation to make an informed decision. On the other hand, the corporate entity itself as well as its shareholders have a legitimate interest in the privacy of their business affairs and the right to be free from unreasonable harrassment, disadvantage and expense.

Cases which have been denied discovery in circumstances similar to those here, have done so because of the need, in some circumstances, to protect privacy. Rifkind v. Superior Court of Los Angeles County, 123 Cal.App.3d 1045, 177 Cal.Rptr. 82 (1981); see Wells v. Wells, 108 Misc.2d 501, 437 N.Y.S.2d 622 (1981); Borg v. Borg, 32 Ill.App.3d 1075, 337 N.E.2d 391 (1975); In re Coordinated Pretrial Proceedings, Etc. Requests for discovery similar to those here have also been denied on the grounds of insufficient specificity of the request. Melnick v. Melnick, 85 A.D.2d 531, 444 N.Y.S.2d 649 (1981); see Mari v. Strater, 91 A.D.2d 579, 457 N.Y.S.2d 73 (1982); Roussos v. Roussos, 106 Misc.2d 583, 434 N.Y.S.2d 600 (1980). Similar to the "specificity" reasoning is the reasoning that discovery should be denied if a request is speculative and discovery would amount to a mere "fishing expedition." Quick v. Quick, 305 N.C. 446, 290 S.E.2d 653 (1982); Borg v. Borg. If it appears that the party requesting discovery has already been granted sufficient information, discovery might be denied. Borg v. Borg.

We recognize, as did the court in Merns v. Merns, 185 N.J.Super. 529, 449 A.2d 1337 (1982), the need for broad and liberal discovery in matrimonial actions. See United Nuclear Corp. v. General Atomic Co., 96 N.M. 155, 629 P.2d 231 (1980). A different rule would hamper the trial court's ability to fulfill its duties. See Gerson v. Gerson, 148 N.J.Super. 194, 372 A.2d 374 (1977); Fox v. Fox, 96 A.D.2d 571, 465 N.Y.S.2d 260 (1983); Frankel v. Frankel, 89 A.D.2d 654, 453 N.Y.S.2d 265 (1982). The corporate form should not be used as a shield behind which parties can conceal assets or...