Opinion issued January 23, 2020
In The
Court of Appeals For The
First District of Texas ———————————— NO. 01-18-00758-CV ——————————— IN RE JULIE STAGNER, LONGMONT PROPERTIES, LLC, RSJS MANAGEMENT, INC., RSJS VENTURES, LP, AND BRECK REAL PROPERTIES, LLC, Relators
Original Proceeding on Petition for Writ of Mandamus
MEMORANDUM OPINION
Non-party relators, Julie Stagner, Longmont Properties, LLC, RSJS
Management, Inc., RSJS Ventures, LP, and Breck Real Properties, LLC, have filed
a petition for writ of mandamus challenging the trial court’s order denying their
motion for protection and motion to quash subpoenas served on relators by real party
in interest and defendant in the underlying lawsuit, Colliers International—Atlanta, LLC (“real party”).1 Real party’s subpoenas sought a deposition from Julie Stagner
(“Julie”) and documents from 2009 to the present, including documents identifying
any real estate transactions in which relators engaged, their personal and private-
entity tax returns, and all communications, including those between Julie and her ex-
husband, Steve Stagner (“Steve”), a non-party employee of plaintiff Mattress Firm,
Inc., while they were in the process of a divorce. Relators produced an affidavit from
Julie and more than 600 pages of documents. They then moved for protection and to
quash the subpoenas, arguing they were overbroad and irrelevant. The district court
denied relators’ motion without limiting any of the requests.
We hold that the trial court clearly abused its discretion by denying relators’
motion for protection and to quash and by ordering production of overbroad
discovery requests, and that relators lack an adequate remedy by appeal. Therefore,
we conditionally grant mandamus relief.
Background
This original proceeding arises out of a lawsuit filed by Mattress Firm, in
which it alleges “a massive, multi-year fraud, bribery, and kickback scheme
involving the senior management of a national retailing company, a nationally-
respected real estate brokerage firm, one of its senior officers, and multiple real
1 The underlying case is Mattress Firm, Inc. v. Bruce Levy, et al., Cause No. 2017- 73196, in the 151st District Court of Harris County, Texas, the Honorable Mike Engelhart presiding.
2 estate developers.” In 2010, as Mattress Firm was expanding its retail stores, it hired
several defendants as employees and real estate brokers and developers to facilitate
the expansion. Mattress Firm terminated these defendants in 20162 when it
discovered an alleged scheme to defraud it through various real estate transactions,
and it filed the underlying lawsuit asserting claims for fraud, civil conspiracy,
constructive trust, unjust enrichment, breach of fiduciary duty, aiding and abetting
breach of fiduciary duty, and negligence.
One of the defendants—who is real party’s employee and not a party to this
original proceeding—filed a counterclaim against Mattress Firm for quantum meruit
and tortious interference with an employment contract and with prospective
contracts and business relations. In one sentence, the counterclaim alleges that
Mattress Firm’s then-President and CEO, Steve Stagner, participated in a real estate
investment with several defendants through Steve’s ex-wife, Julie, “in an apparent
2 Mattress Firm’s Second Amended Petition, its live pleading at the time of this mandamus proceeding, does not state the end date of the allegedly fraudulent activity, only alleging, “[o]n information and belief, that these schemes were consistent and ongoing through the date on which Levy’s and Vinson’s employment was terminated by Mattress Firm . . . ,” which was around the time defendant, Alexander Deitch, was terminated. Bruce Levy and Ryan Vinson were executives at Mattress Firm, and Deitch was a real estate broker employed by real party. Deitch’s counterclaim against Mattress Firm alleges that he was terminated in 2016. Thus, for purposes of this opinion, the Court considers relators’ unchallenged arguments that the allegedly fraudulent scheme occurred from 2010 to 2016 as correct.
3 effort to mask his investment” during a time that Mattress Firm claimed it did not
know about defendants’ fraudulent real estate activity. Based on its employee’s
counterclaim, real party issued the subpoenas at issue to relators seeking to discover
information about Steve’s supposedly secret real estate transactions. The nearly
identical subpoenas requested information from 2006 through 2018, including
“[d]ocuments or tangible things identifying and showing the terms of any transaction
for any real property transaction in which [each relator] bought, sold, or leased real
property either directly or through an entity in which it had a financial interest,”
“[d]ocuments or tangible things identifying any entity [each relator] is or was
affiliated with as a buyer, seller, lessor, or lessee of real property,” all relators’ tax
returns with supporting forms, schedules, and documents, and “all communications”
between each relator and any other relator or party to the underlying lawsuit,
including communications between Julie and Steve during their divorce proceedings
in 2010.
In response, Julie produced an affidavit swearing that she and Steve divorced
in 2010, and neither one is a party to Mattress Firm’s underlying suit. She also
averred that, while married, Julie and Steve formed the four relator-entities for asset
protection purposes. Longmont Properties, LLC (“Longmont”), owned Julie and
Steve’s family home, which was sold after their divorce. Breck Real Properties, LLC
(“Breck”), owns a rental property in Breckenridge, Colorado. RSJS Ventures, LP
4 (“RSJS Ventures”), is the sole member of Longmont and Breck. RSJS Management,
Inc. (“RSJS Management”), is the general partner of RSJS Ventures. Steve’s only
interest in any of the entities was a shareholder interest in RSJS Management until
2009 and a partnership interest in RSJS Ventures until 2012.3 Steve has held no other
interest in any relator entity. Other than Steve’s prior interests described above, the
sole shareholders of RSJS Management and the only limited partners of RSJS
Ventures are Julie and her children.
Since they divorced in 2010, Julie and Steve have participated in only one
investment at the same time, but Julie swore in her affidavit that they “participated
separately” and she “do[es] not know the details of [Steve’s] investment because his
investment is separate from [hers].” No one alleges any defendant participated in
this investment or that it is relevant to any of the parties’ claims or defenses.
Julie further swore that, in 2015, Longmont participated in two real estate
investments organized by one of the defendants. Steve did not participate in either
2015 investment. Longmont produced more than 600 pages of documents regarding
the two 2015 investments. No controverting affidavits were filed.
3 Under an agreement by the general and limited partners of RSJS Ventures, Steve retained a limited partnership interest in RSJS Ventures after their divorce until he received a certain sum in loss pass-through, which reverted to Julie upon completion of the agreement in 2012.
5 When real party was unsatisfied with relators’ subpoena production, relators
filed a motion for protection and to quash the subpoenas. After relators and real party
briefed the issues, the trial court heard counsel’s arguments without a record of the
hearing, and the trial court denied relators’ motion and ordered relators to “produce
all documents and things responsive to [real party’s] subpoenas . . . ”
Relators filed a petition for writ of mandamus in this Court contending that
the trial court abused its discretion by denying relators’ motion for protection and to
quash and by compelling relators to comply fully with real party’s discovery requests
as written. Relators ask us to vacate the trial court’s August 16, 2018 order and
instruct the court to grant relators’ motion for protection and to quash real party’s
subpoenas for oral deposition and to produce documents.4
Standard of Review
Mandamus will issue only to correct a trial court’s clear abuse of discretion
for which the relator has no adequate remedy at law. E.g., In re Prudential Ins. Co.
of Am., 148 S.W.3d 124, 135–36 (Tex. 2004) (orig. proceeding). A clear abuse of
discretion occurs when the trial court’s decision is so arbitrary and unreasonable that
it amounts to clear error. Walker v. Packer, 827 S.W.2d 833, 839–40 (Tex. 1992)
4 With its petition, relators filed a motion for temporary relief asking this Court to stay the trial court’s August 16, 2018 order. This Court granted relators’ motion and stayed enforcement of the trial court’s order pending resolution of the mandamus petition. We lift the stay imposed by our August 24, 2018 order.
6 (orig. proceeding). Because a trial court has no discretion in determining what the
law is, the trial court abuses its discretion if it clearly fails to analyze or apply the
law correctly. Id. at 840. “To satisfy the clear abuse of discretion standard, the relator
must show ‘that the trial court could reasonably have reached only one decision.’”
Liberty Nat’l Fire Ins. Co. v. Akin, 927 S.W.2d 627, 630 (Tex. 1996) (orig.
proceeding) (quoting Walker, 827 S.W.2d at 840). “In determining whether appeal
is an adequate remedy, [we] consider whether the benefits outweigh the detriments
of mandamus review.” In re BP Prods. N. Am., Inc., 244 S.W.3d 840, 845 (Tex.
2008) (orig. proceeding). “An order compelling discovery that is well outside the
proper bounds is reviewable by mandamus.” In re Am. Optical Corp., 988 S.W.2d
711, 713 (Tex. 1998) (orig. proceeding); see also TEX. GOV’T CODE ANN. §
22.221(b)(1) (authorizing courts of appeals to issue writs of mandamus against
district court judge).
Analysis
Relators argue that the trial court abused its discretion by denying them
protection from and ordering full compliance with real party’s discovery requests,
which are overbroad, irrelevant, and invasive, particularly considering that they are
directed to a non-party, the ex-wife of the CEO and president (also a non-party) of
the plaintiff below. Real party responds that its requests are relevant to allegations
that Mattress Firm’s CEO and president secretly invested with defendants during a
7 time Mattress Firm claims it did not know about the allegedly fraudulent real estate
transactions at issue in the underlying lawsuit.
I. The trial court clearly abused its discretion. Relators argue that the trial court abused its discretion by denying their motion
for protection and to quash and ordering them to comply with discovery requests
because: (1) the requests are not reasonably tailored to include only relevant matters,
but instead are overbroad in time and subject matter and constitute an impermissible
fishing expedition; (2) real party did not show that relators’ tax returns were relevant
or material as required; (3) the discovery is obtainable from other sources that are
more convenient, less burdensome, and less expensive, namely parties to the
underlying lawsuit; (4) the burden to non-party relators outweighs any benefit to real
party, which is a party to the underlying lawsuit; and (5) the overbreadth and
irrelevance of the discovery requests—particularly those seeking tax returns and
communications between spouses during their divorce—raise privacy concerns.5
5 Real party argues that relators did not preserve these contentions because they did not file written objections to real party’s discovery requests. We disagree. Relators did not waive any objections by filing a motion for protection and to quash rather than by serving written objections, and real party cites no authority for its argument. A person subpoenaed may serve written objections or may move for a protective order under Rule 192.6(b) before the time specified for compliance. TEX. R. CIV. P. 176.6(d), (e). And “[a] person need not comply with the part of a subpoena from which protection is sought . . . unless ordered to do so by the court.” TEX. R. CIV. P. 176.6(e). Longmont served written objections, and all relators moved for protection and to quash the discovery requests. Because they objected to and resisted real party’s discovery within the time required for a response, clearly stating the bases for their objections and the extent to which they refused the requests, relators did 8 “In general, a party may obtain discovery regarding any matter that is not
privileged and is relevant to the subject matter of the pending action, . . . ” TEX. R.
CIV. P. 192.3(a); see also TEX. R. CIV. P. 176.3(b), 192.3(b). However, the trial court
should limit discovery that is “obtainable from some other source that is more
convenient, less burdensome, or less expensive” or if “the burden or expense of the
proposed discovery outweighs its likely benefit, taking into account the needs of the
case, the amount in controversy, the parties’ resources, the importance of the issues
at stake in the litigation, and the importance of the proposed discovery in resolving
the issues.” TEX. R. CIV. P. 192.4(a), (b). A subpoena recipient may serve written
objections or move for a protective order from objectionable subpoena requests, and
the recipient need not comply with such objectionable requests until ordered to do
so by the trial court. TEX. R. CIV. P. 176.6(d), (e). “[T]rial courts ‘must make an
effort to impose reasonable discovery limits.’” In re Allstate Cty. Mut. Ins. Co., 227
S.W.3d 667, 668 (Tex. 2007) (orig. proceeding) (quoting In re CSX Corp., 124
S.W.3d 149, 152 (Tex. 2003) (orig. proceeding)).
“Requests for production must be ‘reasonably tailored to include only matters
relevant to the case.’” In re Nolle, 265 S.W.3d 487, 491 (Tex. App.—Houston [1st
Dist.] 2008, orig. proceeding) (quoting Am. Optical Corp., 988 S.W.2d at 713). A
not waive their objections to real party’s discovery requests. In re Nat’l Lloyds Ins. Co., 507 S.W.3d 219, 223 (Tex. 2016) (orig. proceeding).
9 discovery request “is not overbroad merely because it may include some information
of doubtful relevance,” and “parties must be allowed some latitude in creating
discovery requests.” Id. at 492 (quoting Am. Optical Corp., 988 S.W.2d at 713 and
Texaco, Inc. v. Sanderson, 898 S.W.2d 813, 815 (Tex. 1995) (orig. proceeding))
“That latitude is not unlimited, however.” Am. Optical Corp., 988 S.W.2d at 713.
“If a reviewing court concludes that a trial court’s discovery order is overbroad, the
trial court has abused its discretion and the order must be vacated if there is no
adequate remedy on appeal.” CSX Corp., 124 S.W.3d at 153.
A. Real party’s requests are overbroad in time.
Discovery requests that are overbroad in time encompass time periods beyond
those at issue in the case. In re Jacobs, 300 S.W.3d 35, 44 (Tex. App.—Houston
[14th Dist.] 2009, orig. proceeding) (citing In re Alford Chevrolet-Geo, 997 S.W.2d
173, 180 n.1 (Tex. 1999) (orig. proceeding)). Relators argue that the subpoenas are
overbroad in time because they seek information from 2006 to 2018 even though
Steve has had no interest in any relator-entity since 2009 or 2012, and the fraudulent
scheme alleged in the lawsuit occurred from 2010 to 2016.6
6 Real party responds that relators waived their objection because they did not present it to the trial court and that, in any event, their request did not extend back thirty or more years and was thus not overbroad in time. We disagree. Real party first sent a subpoena to Longmont, which timely served written objections to each of real party’s discovery requests, including an objection that the requests were “not limited to . . . any relevant time period.” Thus, real party was on notice that at least one relator objected to the time period of the requests. Moreover, relators’ motion for 10 We disagree that the time period of real party’s requests is reasonable. While
courts often hold that requests for thirty or fifty years’ worth of information are
fishing expeditions, even requests for five years’ worth of information have been
held overbroad. See, e.g., Allstate Cty. Mut. Ins. Co., 227 S.W.3d at 669 (collecting
cases). Real party’s request for more than ten years of information goes well beyond
the relevant time period of 2010 to 2016 that is at issue in the underlying litigation.
B. Real party’s requests are overbroad in subject matter.
Relators also argue that real party’s requests are unlimited in subject matter
and therefore are overbroad and constitute an impermissible fishing expedition. Real
party responds that its requests concern only individuals and entities who
participated with some defendants and projects that are similar in purpose to those
of which Mattress Firm complains in the underlying lawsuit.
A review of real party’s subpoenas, however, shows they are not reasonably
tailored to seek only relevant information. For example, real party seeks documents
about “any transaction for any real property” that is not limited to transactions with
any party below or with Steve. Nor are real party’s requests limited to transactions
protection and to quash—which attached Longmont’s written objections as an exhibit—continued the objection by heavily relying on the timeline of the allegations made in the underlying lawsuit to argue that real party’s requests were overbroad and irrelevant. See Nat’l Lloyds Ins. Co., 507 S.W.3d at 223 (finding no waiver where party resisting discovery “objected from the earliest instance,” clearly stated objections and extent it refused request, and continued to object). Thus, relators preserved this issue for our review. TEX. R. APP. P. 33.1(a).
11 like those that Mattress Firm alleges were fraudulent. Real party’s requests have
little relation or relevance to the scope of the parties’ dispute.
Real party’s sole basis for the requests is that Steve allegedly covertly
participated in real estate investments through Julie and relator-entities with people
whom Mattress Firm now alleges defrauded it. This allegation is based on a
counterclaim by real party’s employee, who is also a defendant, which states,
“Although [Steve] Stagner approached Deitch, Levy and Vinson to participate in a
deal, he had his ex-wife Julie Stagner handle the investment in an apparent effort to
mask his investment.”
Real party points to several emails that it argues support its theory. In a chain
of emails between defendants Levy, Deitch, and Vinson in November 2015, Deitch
wrote that he needed “Steve’s entity or if he wants to use his name for this
agreement,” and he then forwarded the email to Steve, stating, “This is same
agreement [a]s our last deal. [Please check] out. Need an entity name and address.”
Steve forwarded the email to Julie, stating, “Need to discuss ASAP. Will call [you].”
Around the same time, in another chain of emails, Deitch sent Levy an email stating,
“I need the entity for [Vinson] and Steve.” But that email was not forwarded to
Steve; rather, it was forwarded only to Julie, who never mentioned Steve or indicated
that Steve was affiliated with the investment. And in an earlier September 2015
email to Steve, Levy stated, “[Please] review standard partnership agreement. Other
12 operating agreement and lease will come once we conclude this to them. Need the
corp[oration] name added and address. [Thanks].” Steve did not respond, but
forwarded the email to Julie. At best, the record suggests confusion by several
defendants about whether Steve or Julie was participating in the referenced
investment, a confusion that is not resolved in the emails.
But other emails indicate Steve was not participating in those deals, despite
the confusion and repeated emails from Levy, Vinson, and Deitch. In an August 23,
2016 email, Julie clarified her relationship with Steve and made clear that they do
not invest together:
I want to clarify as it might be confusing. Steve and I have been divorced since 2010. He remarried and divorced after that. When I did these deals with Bruce and Alex, Steve was going through a divorce with someone else and was not able to participate.
Steve and I are friends and introduce each other to opportunities through our contacts. We are not legally connected financially and any investments we participate in are independent of each other. In a September 8, 2016 email, Levy emailed an investor update to Steve, asking him
to forward it to Julie. Steve responded, “they can send directly to her at [her email
address, which he provided,] since it[’]s her deal,” and Steve forwarded the email to
Julie.
Contrary to real party’s arguments, these emails do not tend to show that Steve
participated in any real estate transaction, much less secretly participated through
relators. And the lack of evidence that Steve participated in any real estate
13 transaction with Julie or the other relators after their divorce in 2010 shows that real
party’s subpoenas are well outside the bounds of proper discovery and constitute an
impermissible fishing expedition. See Sanderson, 898 S.W.2d at 815.
Despite the irrelevance and overbreadth of most of real party’s requests,
relators responded in good faith with an affidavit from Julie and more than 600 pages
of documents. Real party argues Julie’s affidavit is self-serving, but we disagree and
find the uncontroverted affidavit is “clear, positive, direct, otherwise credible, free
from contradictions and inconsistencies, and readily could have been controverted.”
See, e.g., Highland Capital Mgmt., L.P. v. Ryder Scott Co., 402 S.W.3d 719, 734
n.9, 736 (Tex. App.—Houston [1st Dist.] 2012, no pet.) (quoting Trico Techs. Corp.
v. Montiel, 949 S.W.2d 308, 310 (Tex. 1997)). Julie’s affidavit is not contradictory
merely because it states that RSJS Ventures—Longmont’s sole member—and RSJS
Management—RSJS Ventures’ general partner—have not participated in any
financial investment with Steve or with any party to the underlying lawsuit. See Steer
Wealth Mgmt., LLC v. Denson, 537 S.W.3d 558, 567 (Tex. App.—Houston [1st
Dist.] 2017, no pet.) (“A limited liability company, however, is a separate legal entity
from its members.”); see also TEX. BUS. ORGS. CODE ANN. §§ 101.106(b) (“A
member of a limited liability company . . . does not have an interest in any specific
property of the company.”). Real party could have controverted Julie’s affidavit, but
it offered no evidence in rebuttal.
14 C. Real party did not meet its burden to obtain relators’ tax returns.
Real party did not meet its burden to show that relators’ tax returns are
relevant or material to any issue in the underlying lawsuit.7 “[U]nlike when other
types of financial records are sought[,] after a resisting party objects to the
production of tax returns, the burden shifts to the party seeking to obtain the
documents to show that the tax returns are both relevant and material to the issues
in the case.” In re Beeson, 378 S.W.3d 8, 12 (Tex. App.—Houston [1st Dist.] 2011,
orig. proceeding). “[F]ederal income tax returns are considered private and the
protection of that privacy is of constitutional importance.” Id. (citing Maresca v.
Marks, 362 S.W.2d 299, 301 (Tex. 1962) (orig. proceeding)); see also Hall v. Lawlis,
907 S.W.2d 493, 494–95 (Tex. 1995) (orig. proceeding) (explaining court’s
“reluctance to allow uncontrolled and unnecessary discovery of federal income tax
returns”). Real party offers no argument about the relevance and materiality of any
of relators’ tax returns, and thus did not meet its burden to obtain the returns.
Relators have complied with real party’s discovery requests insofar as they
were relevant and within the scope of discovery. Julie provided an affidavit, and real
party offered no controverting testimony or any argument that it could learn
7 Real party’s mandamus response argues that relators waived this objection, but we disagree. Relators’ motion for protection and to quash argued that real party’s requests for tax returns are “wholly irrelevant to this lawsuit” and objected to the confidential nature of the documents that real party sought, including tax documents. Thus, relators did not waive their objection. See TEX. R. APP. P. 33.1(a).
15 additional relevant information by deposing her. And Longmont produced all
documents in its possession, custody, or control related to the two 2015 real estate
investments, which are the only investments during the relevant time of the allegedly
fraudulent real estate schemes that occurred from 2010 to 2016.
Real party’s subpoenas to relators were overbroad in time and subject matter
and were not reasonably tailored to discover only relevant information. The trial
court abused its discretion by failing to analyze and apply the law correctly and by
issuing an order to non-party relators to comply with real party’s overbroad
discovery requests. Relators have shown that the trial court reasonably could have
reached only one decision, which was to limit the discovery requests. See Liberty
Nat’l Fire Ins. Co., 927 S.W.2d at 630.
II. Relators have no adequate remedy on appeal.
Relators also argue there is no adequate remedy by appeal. The Texas
Supreme Court has explained that “where a discovery order compels production of
‘patently irrelevant or duplicative documents,’ . . . there is no adequate remedy by
appeal because the order ‘imposes a burden on the producing party far out of
proportion to any benefit that may obtain to the requesting party.’” CSX Corp., 124
S.W.3d at 153 (quoting Walker, 827 S.W.2d at 843). Furthermore, relators are not
parties to the underlying proceeding and have no right to appeal the discovery order,
and therefore no adequate appellate remedy exists. In re Berry, 578 S.W.3d 173, 182
16 (Tex. App.—Corpus Christi–Edinburg 2019, orig. proceeding) (citing City of
Houston v. Chambers, 899 S.W.2d 306, 308 (Tex. App.—Houston [14th Dist.] 1995,
orig. proceeding)); In re Sassin, 511 S.W.3d 121, 125 (Tex. App.—El Paso 2014,
orig. proceeding).
Conclusion
The trial court clearly abused its discretion in denying relators’ motion for
protection and to quash and ordering relators to comply with real party’s overbroad
discovery requests. Moreover, relators lack an adequate remedy by appeal.
Accordingly, without hearing oral argument, we conditionally grant the writ of
mandamus and direct the trial court to: (1) vacate its order, signed on August 16,
2018, denying relators’ motion to quash and for protection and compelling relators
to comply with real party’s subpoenas for oral deposition and to produce documents;
and (2) enter an order granting relators’ motion for protection and motion to quash
real party’s subpoenas for oral deposition and to produce documents. See TEX. R.
APP. P. 52.8(c). The writ will issue only if the trial court fails to comply. Any pending
motions are dismissed as moot.
Evelyn V. Keyes Justice
Panel consists of Justices Keyes, Goodman, and Countiss.