Reform In Action: Net Worth Disclosure
The Texas Supreme Court recently issued an emergency stay of a lower court’s ruling in a personal injury and wrongful death case, citing a 2015 reform advocated for by TLR.
The plaintiffs in the case had requested discovery of the defendant’s net worth, and the trial court granted it. A statute enacted in 1995 specifically provided that a plaintiff could introduce evidence about a defendant’s net worth to help establish the amount of punitive damages that might be assessed against that defendant. However, at the same time, punitive damage awards were subject to limits that had nothing to do with the defendant’s net worth.
In practice, plaintiffs regularly pleaded a right to recover punitive damages, and then would seek to discover information about the defendant’s net worth through depositions and requests for documents. Plaintiffs pursued these punitive damages claims even when they had little chance of recovering them under the facts of the case.
Though not universally the case, this tactic is used by plaintiffs for a couple of reasons. First, for an individual or privately owned company, the threat that private financial information—such as financial statements, loan applications and tax returns—may be discovered and revealed creates leverage for the plaintiff to force the defendant into a settlement. Second, if the defendant is financially strong, the presentation of net worth evidence to a jury can be highly prejudicial to that defendant.
SB 735, enacted by the Legislature in 2015 with TLR’s strong support, protects private financial information from disclosure in litigation. It provides that, in order to obtain pre-trial discovery of net worth evidence from a defendant, a plaintiff must convince the trial court that he or she has a substantial likelihood of succeeding on their claim for punitive damages.
The law does not prevent the discovery of financial information; it simply requires a plaintiff to show a legitimate chance of success on his or her punitive damage claim before being able to obtain private and confidential financial information. Then, when allowed to obtain net worth discovery, the plaintiff must use the least restrictive means available to obtain that information.
In the recent case, the defendant argued that the plaintiff hadn’t met the statutory requirements to merit discovery of net worth. The plaintiff made numerous assertions of fact that might have supported a claim to recover punitive damages, but none were supported by actual evidence.
The defendant, on the other hand, provided evidence negating the plaintiff’s unfounded allegations. Nonetheless, the trial court allowed discovery of the defendant’s net worth to take place. The defendant sought appellate review. After Houston’s 1st Court of Appeals denied the defendant’s request for an emergency stay, the case was escalated to the Texas Supreme Court, which stayed the net worth discovery pending further review.