Texhoma Stores, Inc. v. American Central Ins. Co.

• Decision Date: 26 January 1968
• Citation: 424 S.W.2d 466
• Parties: TEXHOMA STORES, INC., Appellant, v. AMERICAN CENTRAL INSURANCE COMPANY, Appellee. No, 17005. . Dallas
• Court: Texas Court of Appeals

Page 466

424 S.W.2d 466

TEXHOMA STORES, INC., Appellant, v. AMERICAN CENTRAL INSURANCE COMPANY, Appellee.

No, 17005.

Court of Civil Appeals of Texas.

Dallas.

Jan. 26, 1968.

Rehearing Denied Feb. 23, 1968.

Wm. Andress, Jr., of Andress, Woodgate & Condos, Dallas, for appellant.

Webber Beall, Jr., of Touchstone, Bernays & Johnston, Dallas, for appellee.

CLAUDE WILLIAMS, Justice.

Appellant Texhoma Stores, Inc. appeals from an order of the district court dismissing its suit, such order based upon the refusal of appellant to obey a pretrial order, issued pursuant to Rule 167, Vernon's Texas Rules of Civil Procedure, concerning the production of the original, or true copies, of federal income tax returns of the corporation.

This is the second appeal of this case. The first appeal, which was from an order dismissing appellant's suit, with prejudice, was decided by the Tyler Court of Civil Appeals in Texhoma Stores, Inc. v. American Central Ins. Co., 398 S.W.2d 344 (tex.Civ.App., Tyler 1966, writ ref'd, n.r.e., Tex., 401 S.W.2d 593). The essential antecedent facts relating to the nature of appellant's cause of action and appellee's defense thereto are found in the opinion of the court set forth above.

Following reversal and remand of the first order of dismissal the trial court set the case for trial. Thereafter, and prior to trial, appellee insurance company filed its written motion for discovery and production of documents pursuant to Rule 167, T.R.C.P. By its motion appellee moved the court to 'order Texhoma Stores, Inc., to produce in court for inspection by attorneys for defendant, income tax returns of Texhoma Stores, Inc. for the tax years 1959, 1960, 1961 and 1962; * * *.' After alleging that one of its defenses to appellant's cause of action was that of arson by James R. Melton, an employee of Texhoma Stores, Inc., appellee alleged:

'That neither American Central Insurance Company nor its attorneys or other agents have previously examined said income tax returns, and are therefore unable to state specifically what information is contained therein, but does have reason to believe that said returns contain information concerning the ownership and financial condition of Texhoma Stores, Inc., list of merchandise inventories, purchases and sales, and other vital information, all of which is relevant and material to the issues on trial herein, so as to make said returns properly subject to discovery in their entirety.'

As a part of its prayer appellee asked the court to require Texhoma Stores, Inc. to produce in court for inspection by the attorneys for appellee the income tax returns for the tax years 1959, 1960, 1961 and 1962 of the corporation or 'in the alternative, that this Honorable Court order that the said tax returns be produced in court For inspection by the Court and that the Court then, in its own discretion, after Having duly inspected said returns, determine what portions thereof are material and relevant to issues on trial in this lawsuit, and that those portions of said tax returns material and relevant to issues on trial in this lawsuit be produced to attorneys for American Central Insurance Company for inspection and discovery.' (Emphasis supplied.)

Appellant filed its verified answer in which it attacked said motion for failing to state good cause for discovery and production of privileged income tax returns of the corporation. It was also alleged that the insurance company had audited the books of the corporation through an auditor of its choice and had secured whatever it desired from the records and had in its possession information concerning the ownership and financial condition of the corporation, list of merchandise inventories, purchases and sales, and all other information which it sought to elicit from the tax returns. It was also alleged that at the prior hearing all information requested or desired by counsel for the insurance company was furnished in open court and was in possession of the appellee. Appellant protested that the motion for production was for the purpose of harassing it and delaying disposition of the cause or because the judge of the court had expressed himself that he would not try the case until the income tax returns had been produced and delivered and had refused to transfer the cause to any other court for trial.

In the affidavit attached to the answer appellant's attorney stated upon his oath that 'he does not and never has had in his possession the 1959 income tax returns for the plaintiff, but that he does have copies of the 1960, 1961, and 1962 returns, Which he has been advised are not true and correct, but which are the ones which were submitted to the inspection of the Court on 16 March 1965 as hereinabove set forth.' (Emphasis supplied.)

Prior to hearing of the motion subpoenas duces tecum were served upon Mr. and Mrs. Melton and attorney William Andress directing that they produce in court 'true and correct copies of the Income Tax returns,' of Texhoma Stores, Inc., for the years 1959, 1960, 1961 and 1962.

Upon the hearing of the motion Mrs. Lucille Melton testified that she was president of Texhoma Stores, Inc., and was such officer during the times material to the hearing. She was asked if she had produced the tax returns of the corporation for the years 1959 through 1962, to which she responded that she had not done so but that they were in the possession of her attorney, Mr. Andress.

Mr. Melton was placed on the witness stand and testified that he did not remember whether he had ever been an officer of the corporation and did not know at the present time whether he was such an officer. He testified that he had made no effort to secure the copies of the income tax returns because he assumed that Mr. Andress had them in his possession. He further testified that after the fire occurred all of the Texhoma books and records were made available to the auditor on behalf of American Central Insurance Company; that such auditor spent two or three months going over the books and records of the company and that he was never refused any information asked for concerning the loss made the basis of the lawsuit. That said auditor was furnished all of the information pertaining to merchandise inventories, purchases, sales, ownership and financial condition of the corporation.

Mr. William Andress, Jr., attorney for the appellant, was placed on the witness stand and testified that he had in his possession office copies of 1960, 1961 and 1962 tax returns but that he had never had in his possession the 1959 tax return. Over his protest, and by express order of the court, he delivered the office copies of the 1960, 1961 and 1962 tax returns to the court, receiving the court's receipt therefor. He testified that the copies delivered were the same returns that were involved in the first hearing. He testified that he did not personally prepare the income tax returns nor did he file them for the corporation. As to the correctness of the returns he said:

'Q Do you know of your own knowledge whether or not these are true and correct copies of the income tax returns filed by the corporation?

'A I do not.'

Mrs. Melton was recalled as a witness and was asked to examine the copies which had been delivered to the trial judge. She testified that her signature, as president of the corporation, was on the 1960 and 1961 copies but that the 1962 copy was not signed.

Her testimony concerning the correctness of the copies was as follows:

'Q Mrs. Melton, would you state whether or not you can state under oath that these are true and correct copies of any income tax returns that was prepared? Of your own knowledge, do you know if all the information contained on there is true and accurate and represents those matters that are filed at that time?

'A No, sir, I don't.

'Q Did you personally prepare the income tax returns?

'A No, sir.

'Q Did you have any supervision in the preparation of the income tax returns?

'THE COURT: Did you personally have personal supervision of it?

'A Well, I wasn't present when they were prepared. Is that what you mean?

'Q Were these returns prepared from the books, ledgers and instruments which were submitted to a third party?

'A Yes, sir.

'Q And were you present at any time that the information was transferred or transposed from these books, ledgers and instruments to what are purported to be the returns here?

'A I don't know.'

She testified that after the fire the corporation made available all of its books and records from which the income tax returns were derived to the auditor that was sent out on behalf of American Central Insurance Company and that he spent considerable time going over the records with the auditor for the company. She stated she never refused to furnish to the auditor for the appellee company any of the information which they requested from the books and records.

Following this testimony a colloquy occurred between the court and counsel for the parties concerning production of the original tax returns, or true copies, and the court suggested that such might be obtained from the Internal Revenue Department by appellant. The attorney for the appellee stated: 'All we asked for and all I want is a correct copy of those income tax returns.' Appellee's counsel also stated to the court that if the true returns were secured his client would defray the necessary cost for copying, etc.

The court then made the following order:

'THE COURT: * * * This is the order. Plaintiff, Texhoma Stores, Incorporated and its president, Mrs. Melton, are ordered to deliver to this Court For examination true copies of the 1959, 1960, 1961 and 1962 income tax report. Do you think you need more than thirty days?' (Emphasis supplied.)

Thereafter a written order was prepared, the essential parts being as follows:

'It is a further ORDER of this Court that defendant's Motion for Discovery and Production of Income Tax Returns should be and is in all...