Schnabel v. Superior Court
Decision Date | 22 July 1993 |
Docket Number | No. S024822,S024822 |
Citation | 21 Cal.Rptr.2d 200,5 Cal.4th 704,854 P.2d 1117 |
Court | California Supreme Court |
Parties | , 854 P.2d 1117 Terry L. SCHNABEL et al., Petitioners, v. The SUPERIOR COURT of Orange County, Respondent; Marilyn J. SCHNABEL, Real Party in Interest. |
Roquemore, Pringle & Moore, John P. Pringle and Peter C. Anderson, Los Angeles, for petitioners.
No appearance for respondent.
James C. Booth, Orange, for real party in interest.
One spouse employed by a close corporation is record shareholder of 30 percent of its stock. The stock is community property. We must decide the scope of the other spouse's right to discover records of the corporation in a marriage dissolution proceeding.
The trial court and Court of Appeal ordered the corporation to produce business records and corporate and quarterly payroll tax returns. We affirm the judgment as to the business records; the trial court acted within its discretion in ordering their production. We further conclude that the corporate tax returns and payroll tax returns regarding the shareholder spouse were properly ordered produced, but that any information in the payroll tax returns identifying other persons need not be disclosed.
The relevant facts are undisputed. Terry and Marilyn Schnabel separated in 1991 after 25 years of marriage. Marilyn petitioned for a dissolution of the marriage, and requested spousal support, determination of property rights, and attorney fees. There were no minor children of the marriage. Terry is employed by and is the record shareholder of 750 shares, approximately 30 percent of the stock, of Orange Container, Inc. (Orange Container), a close corporation. The stock is community property. A third party owns the remainder of the stock. Marilyn hired a certified public accountant to appraise the corporation's value and to ascertain Terry's remuneration and benefits.
After informal attempts at discovery were unsuccessful, Marilyn served a deposition subpena for production of business records on the custodian of records of Orange Container pursuant to Code of Civil Procedure section 2020. The subpena sought production of a broad range of business and tax records of the corporation, including the corporate tax returns, quarterly payroll tax returns, profit and loss statements, bank activity statements, and records reflecting compensation and benefits paid to Terry. 1
Orange Container produced its profit and loss and financial statements (item 2) and all records relating to Terry personally (items 4 to 10). It moved to quash the subpena for the remainder of the requested information, claiming it was "irrelevant, privileged, confidential and an invasion of privacy of the non-party shareholder" of the corporation. Terry's declaration filed in support of the motion to quash stated that the remaining documents "may disclose personal information of the majority shareholder...." Marilyn's opposition to the motion attached the accountant's declaration detailing the reasons each of the disputed items of information was necessary in order to independently verify the information already produced.
The superior court denied the motion to quash. Terry and Orange Container filed the instant petition for writ of prohibition/mandate in the Court of Appeal asking that the superior court be ordered to grant the motion. The Court of Appeal summarily denied the petition. We granted review and transferred the matter to the Court of Appeal with directions to vacate its order denying the petition and issue an alternative writ. Thereafter, that court issued an opinion again denying the petition, and holding that both the business and the tax records were properly ordered produced.
We granted review.
The courts below ordered the corporation to produce both business records and tax returns. We discuss each category of documents separately.
Orange Container voluntarily produced its profit and loss and financial statements and all records relating to Terry personally. The trial court ordered production of much more--a wide range of other business records for specified time periods, such as bank activity statements, accounts receivable and payable listings, ledgers, cash receipts and disbursement records, and sales and purchase registers. (See ante, fn. 1.)
"Under the discovery statutes, information is discoverable if it is unprivileged and is either relevant to the subject matter of the action or reasonably calculated to reveal admissible evidence." (Valley Bank of Nevada v. Superior Court (1975) 15 Cal.3d 652, 655-656, 125 Cal.Rptr. 553, 542 P.2d 977 [Valley Bank ]; see Code Civ.Proc., § 2017, subd. (a).) At the outset, we note that information about the value of community assets and the parties' financial status is clearly relevant to the spouse's interests in obtaining a fair division of those assets and fair attorney fee and spousal support (and, in other cases, child support) awards. Moreover, at least as to a division of assets and child and spousal support awards, those interests are strongly protected by California law.
The Legislature has recently declared: (Civ.Code, § 4800.10, subd. (a), eff. Jan. 1, 1993.)
This policy is further emphasized by Civil Code section 4800.11, subdivision (a)(1), also effective January 1, 1993:
Despite the strong policy in favor of disclosure, we must also consider any third party right to financial privacy. In Valley Bank, supra, 15 Cal.3d 652, 125 Cal.Rptr. 553, 542 P.2d 977, a private litigant sought discovery of bank records that would have revealed information disclosed to the bank in confidence by third party customers. The bank objected, claiming that the information sought was privileged. We rejected the claim, finding that, unlike the lawyer-client or physician-patient privileges, there was no statutory bank-customer privilege. (Id. at p. 656, 125 Cal.Rptr. 553, 542 P.2d 977, italics in original.)
Nevertheless, despite the absence of an absolute privilege, we found that the constitutional right of privacy (Cal. Const., art. I, § 1) provided a "limited form of protection for confidential information given to a bank by its customers." (Valley Bank, supra, 15 Cal.3d at p. 656, 125 Cal.Rptr. 553, 542 P.2d 977.) Therefore, "we indulge in a careful balancing of the right of civil litigants to discover relevant facts, on the one hand, with the right of bank customers to maintain reasonable privacy regarding their financial affairs, on the other." (Id. at p. 657, 125 Cal.Rptr. 553, 542 P.2d 977.)
We summarized the duty of trial courts to reconcile the conflicting interests of litigants in obtaining necessary discovery and third parties in maintaining privacy: (Valley Bank, supra, 15 Cal.3d at p. 658, 125 Cal.Rptr. 553, 542 P.2d 977.) We noted the availability of procedural devices such as in camera hearings to further accommodate the conflicting interests. (Ibid.)
The Valley Bank analysis was applied to a marriage dissolution proceeding in Rifkind v. Superior Court (1981) 123 Cal.App.3d 1045, 177 Cal.Rptr. 82. There, the husband was the president of an incorporated law firm of 28 lawyers, 14 of whom were shareholders. The husband agreed to produce the financial reports of the law...
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