Justia.com Opinion Summary: A discovery dispute arose out of claims for legal malpractice and breach of fiduciary duty brought by Moreland/Manoogian, LLC and Tamsen Investments, LLC (collectively "M/M"). Richard Judd, Stephen Waters and their firm Robinson Waters & O'Dorisio, PC (RWO) represented M/M in a real estate development deal. Cedar Street Venture, LLC and M/M sought to solidify their partnership, but in the final phases of the deal, Cedar Street's attorney withdrew. RWO continued to represent M/M in the transaction but at times also advised and acted on behalf of Cedar Street. Because of these actions, Cedar Street viewed RWO as its attorney. Eventually the relationship between M/M and Cedar Street soured, and the parties went to arbitration to settle their differences. The basis of M/M and Cedar Street's complaints pertained to RWO's fees. During discovery, M/M sought RWO's financial records. RWO refused to turn them over. With minimal explanation, the trial court found that these documents were directly relevant to the case. In its holding, the Supreme Court took the opportunity to set the framework that trial courts should use when deciding on discovery requests that implicate the right to privacy: (1) the party requesting the information must prove the information is relevant to case; (2) the party opposing the request must show that the materials are confidential and will not otherwise be disclosed; (3) if the court determines there is a legitimate expectation of privacy in the materials, the requesting party must prove disclosure serves a compelling interest; and (4) if successful, the requesting party must show that the information is not available through other sources.
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ADVANCE SHEET HEADNOTE
June 27, 2011
No. 10SA374, In Re: Moreland/Manoogian v. Judd Discovery -right to privacy -- financial records
The supreme court discusses the framework that trial courts
should employ when deciding discovery requests implicating the
right to privacy.
The party requesting the information must
always first prove that the information requested is relevant to
the subject of the action.
Next, the party opposing the
discovery request must show that it has a legitimate expectation
that the requested materials or information is confidential and
will not be disclosed.
If the trial court determines that there
is a legitimate expectation of privacy in the materials or
information, the requesting party must prove either that
disclosure is required to serve a compelling state interest or
that there is a compelling need for the information.
If the
requesting party is successful in proving one of these two
elements, it must then also show that the information is not
available from other sources.
Lastly, if the information is
available from other sources, the requesting party must prove
that it is using the least intrusive means to obtain the
information.
The supreme court holds that the documents requested in
this case fall under the umbrella of the right to privacy and
thus remands to the trial court for analysis under this
framework.
SUPREME COURT, STATE OF COLORADO
101 West Colfax Avenue, Suite 800
Denver, Colorado 80202
Case No. 10SA374
Original Proceeding Pursuant to C.A.R. 21
District Court, City and County of Denver
Case Nos. 09CV7235 and 09CV11018
Honorable Herbert L. Stern, III, Judge
In Re:
District Court, City and County of Denver, 09CV7235
Plaintiffs:
Cedar Street Venture, LLC a Colorado limited liability company and
Montage Project Joint Venture,
v.
Defendants:
Richard D. Judd and Robinson Waters & O‟Dorisio, P.C.,
and
District Court, City and County of Denver, 09CV11018
Plaintiffs:
Moreland/Manoogian, LLC and Tamsen Investments, LLC,
v.
Defendants:
Richard D. Judd, Stephen L. Waters, and Robinson Waters &
O‟Dorisio, P.C.
RULE MADE ABSOLUTE
EN BANC
June 27, 2011
The Law Offices of Peter R. Bornstein
Peter R. Bornstein
Denver, Colorado
Attorneys for Plaintiffs Cedar Street Venture, LLC and
Montage Project Joint Venture
Featherstone Petrie DeSisto LLP
Andrew J. Petrie
Lisa A. Lee
Sarah Block Wallace
Denver, Colorado
Attorneys for Plaintiffs Moreland/Manoogian, LLC and Tamsen
Investments, LLC
Gordon & Rees LLP
John M. Palmeri
Heather K. Kelly
Denver, Colorado
Attorneys for Defendants
JUSTICE RICE delivered the Opinion of the Court.
JUSTICE EID concurs in the judgment.
2
In this original proceeding, we determine whether a
litigant may compel discovery of financial documents which
identify an opposing litigant‟s compensation and how that
compensation is determined.
We hold that a litigant has a
personal right to privacy in these types of financial records
and that disclosure is only required if the requesting party
proves that: (1) the documents are relevant to the subject
matter of the case; (2) disclosure is required to serve a
compelling state interest or there is a compelling need for the
documents; (3) the requested information is not available from
other sources; and, if it is, (4) that the requesting party is
using the least intrusive means to obtain the information.
We
make this rule absolute and remand to the trial court with
instructions to apply this test.
I.
Facts and Proceedings Below
This discovery dispute arises out of claims for legal
malpractice and breach of fiduciary duty brought by
Moreland/Manoogian, LLC and Tamsen Investments, LLC
(collectively “M/M”) against Richard D. Judd, Stephen L. Waters,
and Robinson Waters & O‟Dorisio, P.C. (collectively “RWO”) and
claims for breach of fiduciary duty brought by Cedar Street
3
Venture, LLC and Montage Project Joint Venture (collectively
“Cedar Street”) against RWO.1
Cedar Street and M/M entered into a real estate purchase
and development deal.
RWO represented M/M in the transaction.
During the course of the transaction, Cedar Street‟s attorney
withdrew.
RWO continued to represent M/M in the transaction
but, at times, also advised and acted on behalf of Cedar Street.
Because of these actions, Cedar Street viewed RWO as its
attorney.
The relationship between M/M and Cedar Street
eventually soured, resulting in arbitration proceedings.
Ancillary to the conflict between M/M and Cedar Street, in
November 2009, M/M filed a complaint against RWO alleging
professional negligence and breach of fiduciary duties.
Likewise, Cedar Street filed a complaint against RWO alleging
breach of fiduciary duties and intentional interference with a
contractual relationship.
two cases.
The trial court consolidated these
M/M and Cedar Street allege, among other things,
that RWO‟s pursuit of fees and pecuniary gain from the continued
representation of M/M formed part of the basis for their claims.
During discovery, M/M sought financial records regarding
Judd‟s compensation from Judd and RWO.
Among other things, M/M
requested:
1
Cedar Street did not include Stephen L. Waters in its
complaint.
4
(1)
(2)
Each and every DOCUMENT that identifies Judd‟s
compensation from RWO for the years 2004, 2005,
2006, and 2007; and
Each and every DOCUMENT that describes the
methodology by which RWO determined the amount of
compensation it paid to JUDD for the years 2004,
2005, 2006 and 2007.
(emphasis in original).
After RWO refused to produce these documents, M/M made
a motion to compel their disclosure.2
With minimal
explanation, the trial court found that these documents
were directly relevant to the case and that RWO failed to
show good cause for protecting the information from
discovery and thus granted the motion to compel.
The trial
court also awarded attorney fees and costs associated with
the discovery dispute to M/M.
RWO petitioned this Court for review under C.A.R. 21 and we
issued a rule to show cause as to whether Judd and RWO must
disclose the financial records.
2
Although not the subject matter of this rule to show cause,
Cedar Street requested similar information in its
interrogatories. Specifically:
(1)
(2)
(3)
Judd‟s gross compensation from RWO, expenses and
net compensation received from RWO for the years
2003, 2004, 2005, and 2006.
State Judd‟s declared income to the IRS for his
work as an attorney for the years 2004 and 2005.
Using
your
response
to
[the
previous
interrogatory], above, state what percentage of
the declared income for each year came from
Moreland/Manoogian, LLC.
5
II.
Analysis
A. Standard of Review
When deciding issues relating to discovery disputes, we
construe the Colorado Rules of Civil Procedure liberally in
order to effectuate the full extent of their truth-seeking
purpose.
Corbetta v. Albertson‟s, Inc., 975 P.2d 718, 720
(Colo. 1999).
Motions to compel discovery are committed to the
discretion of the trial court.
Id.
Thus, we review a trial
court‟s ruling in this context for an abuse of discretion.
B.
Id.
Discovery of the Requested Financial Information
The Colorado Rules of Civil Procedure provide that “parties
may obtain discovery regarding any matter, not privileged, that
is relevant to the claim or defense of any party . . . .
Relevant information need not be admissible at the trial if the
discovery appears reasonably calculated to lead to the discovery
of admissible evidence.”
C.R.C.P. 26(b)(1).
Although the
Colorado Rules of Civil Procedure allow for a broad scope of
discovery, they do not allow for unlimited discovery of all
available information.
Stone v. State Farm Mut. Auto. Ins. Co.,
185 P.3d 150, 155 (Colo. 2008).
There are certain situations
where both the General Assembly and this Court have recognized
the need to limit discovery.
Alcon v. Spicer, 113 P.3d 735, 738
(Colo. 2005).
6
1.
Right to Privacy
One circumstance that warrants additional inquiry outside
of the general requirement of relevancy is when a party opposes
discovery on the grounds that it would violate his right to
privacy.
Corbetta, 975 P.2d at 720.
This right to privacy,
also commonly referred to as the right to confidentiality,
“protects „the individual interest in avoiding disclosure or
personal matters.‟”
Martinelli v. Dist. Court, 199 Colo. 163,
173, 612 P.2d 1083, 1091 (1980) (quoting Whalen v. Roe, 429 U.S.
589, 599 (1977)).
This right “includes „the power to control
what we shall reveal about our intimate selves, to whom, and for
what purpose.‟”
Stone, 185 P.3d at 155 (quoting Martinelli, 199
Colo. at 173-74, 612 P.2d at 1091).
When the right to privacy is at issue, the trial court must
give the discovery request special consideration and balance an
individual‟s right to keep personal information private with the
general policy in favor of broad disclosure.
Cameron, 195 P.3d 659, 660 (Colo. 2008).
Cantrell v.
We have recognized
numerous types of information that require special analysis
based on the right to privacy.
Specifically, we have given
extra consideration to personnel files in Corbetta, 975 P.2d at
720-21, and Martinelli, 199 Colo. at 173–75, 612 P.2d at
1091-92, to computers in Cantrell, 195 P.3d at 661, to sexual
history in Williams v. District Court, 866 P.2d 908, 912 (Colo.
7
1993), and to tax returns in Stone, 185 P.3d at 155, and Alcon,
113 P.3d at 743.
2.
The Martinelli and Stone Tests
We have articulated two different tests to apply when such
information is at issue.
In Martinelli, a case involving a
request for personnel files maintained by the Denver Police
Department, we laid out a three-part balancing test.
at 174, 612 P.2d at 1091.
(1)
(2)
(3)
Id.
199 Colo.
That test asks:
[D]oes the party seeking to come within the
protection of right to confidentiality have a
legitimate expectation that the materials or
information will not be disclosed?
[I]s disclosure nonetheless required to serve a
compelling state interest?
[I]f so, will the necessary disclosure occur in
that manner which is least intrusive with respect
to the right to confidentiality?
We have employed the Martinelli test in cases involving
personnel files, Corbetta, 975 P.2d at 720–21; Martinelli, 199
Colo. at 174, 612 P.2d at 1091, computers, Cantrell, 195 P.3d at
661, and sexual history, Williams, 866 P.2d at 912.
We have used a separate test, however, in cases involving
requests for tax returns.
P.3d at 743.
Stone, 185 P.3d at 159; Alcon, 113
When a party seeks disclosure of tax returns, we
require that it show that: (1) the information is relevant to
the subject of the action; and (2) there is a compelling need
for the information in the returns because the information
sought is not otherwise readily obtainable.
8
Stone, 185 P.3d at
159.
Although we have only applied the Stone test to cases
involving tax returns, federal courts have applied the test in
other contexts as well.
Spacecon Specialty Contractors, LLC v.
Bensinger, No. 09-CV-02080-REB-KLM, 2010 WL 3927783, at *1-2,
*6-7 (D. Colo. Oct. 1, 2010) (requesting information relating to
Spacecon from the Colorado State Directory of New Hires which is
a confidential and secure repository for receiving new hire data
reported by employers in Colorado); Bonanno v. Quizno‟s
Franchise Co., LLC, 255 F.R.D. 550, 552, 555 (D. Colo. 2009)
(requesting information relating to a financial transaction);
Gordanier v. Montezuma Water Co., No. 08-CV-01849-PAB-MJW, 2010
WL 1413109, at *1-2 (D. Colo. Apr. 2, 2010) (concerning a
request for undescribed tapes and documents).
Choosing which test to apply has proven difficult.
See
Cantrell, 195 P.3d at 660–61; Stone, 185 P.3d at 158;; see also
Spacecon Specialty Contractors, 2010 WL 3927783, at *6; Bonanno,
255 F.R.D. at 555; I‟Mnaedaft, Ltd. v. Intelligent Office Sys.,
LLC, No. 08-CV-01804-LTB-KLM, 2009 WL 824304, at *3 (D. Colo.
Mar. 30, 2009).
Further, the facts of some cases do not lend
themselves to analysis under either test.
See Cantrell, 195
P.3d at 661 (recognizing that this Court has applied the
Martinelli test in numerous instances where a state actor was
not involved).
9
3.
The Appropriate Test in This Case
We hold that instead of choosing between the Martinelli and
Stone tests, trial courts should apply a comprehensive framework
-- incorporating, as appropriate, the principles from both tests
-- to all discovery requests implicating the right to privacy.
The party requesting the information must always first prove
that the information requested is relevant to the subject of the
action.
Next, the party opposing the discovery request must
show that it has a legitimate expectation that the requested
materials or information is confidential and will not be
disclosed.
If the trial court determines that there is a
legitimate expectation of privacy in the materials or
information, the requesting party must prove either that
disclosure is required to serve a compelling state interest or
that there is a compelling need for the information.
If the
requesting party is successful in proving one of these two
elements, it must then also show that the information is not
available from other sources.
Lastly, if the information is
available from other sources, the requesting party must prove
that it is using the least intrusive means to obtain the
information.
In this case, M/M requested a broad category of documents
regarding Judd‟s compensation, specifically:
10
(1)
(2)
Each and every DOCUMENT that identifies Judd‟s
compensation from RWO for the years 2004, 2005,
2006, and 2007; and
Each and every DOCUMENT that describes the
methodology by which RWO determined the amount of
compensation it paid to JUDD for the years 2004,
2005, 2006 and 2007.
(emphasis in original).
Despite M/M‟s contentions, this broad
discovery request likely includes tax returns as well as other
financial documents and potentially confidential information
regarding Judd and RWO.
We hold that, based on the broader
protection that we have afforded to financial records in other
contexts, see, e.g., Leidholt v. Dist. Court, 619 P.2d 768, 770
(Colo. 1980) (in the context of punitive damages), these
documents fall under the umbrella of the right to privacy and
necessitate analysis under the framework discussed above.
Therefore, M/M must prove that the requested financial
information is relevant to the subject of the action -- legal
malpractice and breach of fiduciary duty -- and that there is a
compelling need for the documents.
Further, because M/M has
requested all potential documents that contain the desired
information, M/M must prove that it is using the least intrusive
means to obtain the information contained therein.
We have repeatedly held that it must be apparent from the
order that the trial court performed the required balancing
test.
See Stone, 185 P.3d at 160–61; Corbetta, 975 P.2d at 721;
Martinelli, 199 Colo. at 175, 612 P.2d at 1092.
11
Here, the trial
court provided minimal analysis in its order granting M/M‟s
motion to compel.
The trial court, in relevant part, stated:
Plaintiffs claim Mr. Judd continued to represent
Plaintiffs despite conflicts of interest in order to
increase fee revenues. They further allege Mr. Judd‟s
conduct in collecting legal fees violated his fee
agreement with Plaintiffs.
Thus, information related
to Mr. Judd‟s compensation is directly relevant to
this case. The Court finds Defendants have failed to
show good cause for protecting the information from
discovery.
It is clear to us from this statement that the trial court did
not consider whether there is a compelling need for the
information or whether M/M is using the least intrusive means to
obtain the information.
Further, the trial court placed the
burden on Judd and RWO to show good cause for protecting the
information where the burden should be on M/M to show a
compelling need for the information.
C.
Attorney Fees
The trial court awarded attorney fees incurred as a result
of this discovery dispute to M/M, finding that RWO‟s failure to
comply with the discovery request lacked justification and
caused unnecessary delay.
In light of our decision today, we
reverse this order.
III.
Conclusion
For the reasons discussed in this opinion, we hold that the
trial court abused its discretion in requiring RWO to disclose
its financial records.
Accordingly, we make this rule absolute
12
and remand to the trial court with instructions to apply the
test described herein.
JUSTICE EID concurs in the judgment.
13
JUSTICE EID, concurring in the judgment.
Because this case involves a discovery dispute between
private parties over confidential financial information, the
appropriate framework to be applied is the one we articulated in
Stone v. State Farm Mutual Automobile Insurance Co., 185 P.3d
150, 159 (Colo. 2008).
Because the trial court did not apply
this framework, I, like the majority, would make the rule
absolute and remand the case.
Unlike the majority, however, I
would leave for another day the issue of whether this framework
should be applied in other contexts.
therefore concur in the judgment only.
Maj. op. at 10.
I
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