PART I – INVENTORIES & RELATED INSTRUMENTS
I. INTRODUCTION
In a suit for dissolution of marriage §6.502(1) of the Texas Family Code provides that the trial court may grant a temporary injunction requiring one or both parties to prepare and file a sworn inventory and appraisement either on the motion of the parties or on the court’s own motion. The subsection goes on to say that the court may specify the “form, manner, and substance of the inventory and appraisement and list of debts and liabilities.” Many courts require a sworn inventory in all contested cases.
Certainly, the prudent practitioner should begin his preparation of the case by addressing the property, debts and claims that will be made a subject of the lawsuit. This portion of the paper shall attempt to establish the rules regarding requiring inventories, effect of inventories, use to which the inventory can be made, contents of the inventory, the documents and the testimony the practitioner should obtain to prove the inventory value, discovery rules and privileges that apply to gathering the documents, and the trial aides which should be provided to the court in making its determination.
II. REQUIRING INVENTORIES
A. Initial Discussion
Not every court or county requires an inventory in every case. Certainly some cases are so small none is necessary. However, this practitioner has never had a court refuse to require an inventory in cases which either party has filed a formal motion for same in a timely manner. Inventories are also frequently required by:
1. Local rules of practice
Many courts require inventories to be exchanged within a particular period after filing or before trial.
2. Docket control order
Many courts order as part of its docket control order that inventories be exchanged. Failure to comply can have serious implications to admission of evidence.
3. Temporary orders
Many practitioners include provisions in temporary orders which set forth requirements that inventories be included. The order should be specific as to date of filing; where filed; and the format for the inventory. If the order meets these rules, failure to comply can be the subject to contempt powers of the court.
B. Remedies for Failure to File
1. Contempt.
Tex.Fam.Code Ann. §3.58(f) (Vernon’s 1996) allows for the enforcement of the court’s temporary orders by contempt. A party who fails to comply with a temporary order requiring an inventory may be punished by contempt if the order is specific and conforms to the requirements set forth in Ex Parte Slavin, 412 S.W. 2d 43 (Tex. 1967). Thus, the order requiring the inventory must be specific as to the date and place where the inventory is to be produced, the information requested, and whether the inventory will be exchanged or filed. See Ex Parte Higginbotham, 768 S.W.2d 4 (Tex.App.—Fort Worth 1989, no writ).
2. Sanctions.
Monetary Sanctions available for failure to file an inventory within time ordered by the court. Ishmail vs. Ishmail, 702 S.W.2d 216 (Tex.Appt.—Houston [1st Dist.] 1985, writ ref’d n.r.e.) In Ishmail, the husband appealed the trial court’s award of sanctions in the amount of $15,000 for failure to file a sworn inventory within the 45 day time frame prescribed by the temporary orders. Husband filed his inventory in 68 days, rather than the 45, and before the motion and order for sanctions, and thus he contended the sanctions were unwarranted because they were not made to secure compliance with discovery rules. The court of appeals upheld the sanctions, holding that an inventory in a divorce case is “a specie of discovery”, and that the sanctions provided for in Tex.R.Civ.P. 215, as well as those granted in §3.589(c)(1) of the Tex. Fam. Code, are available to the trial court to punish or secure compliance with its order to furnish an inventory.
Provided the order is specific, §3.58(f) might also be used for sanctions, including deemed or waived issues when the other party has failed to supply requested information, such as:
(1) values
(2) character; or
(3) debts secured by an asset
C. Malpractice Implications
Even absent a court order, failure to prepare and file an inventory can have serious consequences.
In a decision with profound implications to family practitioners, the San Antonio court found that the failure to do proper discovery, including requiring the filing of an inventory resulted in a finding that the attorney was not only negligent but that his actions were unconscionable. The failure to discover the assets properly resulted in a judgment against that attorney for $560,000 actual damages, $60,000 for mental anguish, $200,000 in exemplary damages and $100,000 in attorney fees. Ballesteros v. Jones, 985 S.W.2d 901 (Tex.App—San Antonio, 1993, rev. den.).
III. USE TO WHICH INVENTORY IS PUT
It has often been said that the inventory is the practitioner’s roadmap for the case. It should be exhibit number one before the trial court in a property case so that the court can see exactly where you are headed and how you are going to get there. Even before the trial, however, your opponent’s inventory should guide your pretrial preparation. Used, effectively, your opponent’s inventory will provide a blueprint for establishing what additional discovery, including production requests, requests for admissions, and additional interrogatories are necessary, clue you in on his or her strategy, and serve as a guideline for his/her deposition (and, later cross-examination). Even though it is not specifically listed as a discovery tool under the Texas Rules of Civil Procedure, at least on court has determined that the inventory is a specie of discovery subject to the general discovery rule. In upholding a Rule 168 (now Rule 215) sanction against one party to a divorce of $15,000 for his failure to file a court-ordered inventory, the Court held in Ishmail that failure to file an ordered inventory was akin to a discovery violation and justified sanctions under the discovery rule as set forth, infra.
A. Admissibility
1. In order for the fact finder to rely upon the inventory, the filing of the inventory prior to trial is not enough; the inventory must be formally introduced into evidence during trial. When the other party offers its inventory into evidence, the appropriate objection is hearsay. “Hearsay” is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted. Rule 801(d), Texas Rules of Civil Evidence.
2. However, a party as owner of separate property or community property, may testify as to its value, even if not qualified as an expert. Wright v. Germandt, 559 S.W.2d 864 (Tex.Civ.App.—Corpus Christi 1977, no writ). Therefore, the way to avoid a hearsay objection is to offer the inventory as a summary (under Rule 1006, Texas Rules of Civil Evidence) of your client’s testimony of value.
3. When one party offers the inventory of the other party, the inventory is an admission; accordingly, a hearsay objection is not well-founded. Rule 801(3)(2), Texas Rules of Civil Evidence.
4. When one’s opponent offers part of an inventory, the remainder of the inventory should be admissible under the rule of optional completeness. Rule 801(3)(2), Texas Rules of Civil Evidence.
B. Consideration by the Court if Not Admitted, but “contained in the court file.”
Of course, the best practice is to offer the sworn inventory and have it admitted. However, what effect does the sworn inventory have if it is not formally admitted, but contained in the file and obviously considered by the trial court?
1. There formerly was a conflict of authority as to the use of an inventory which had not been admitted into evidence. The Tyler Court of Appeals held that an inventory which has not been admitted into evidence is not part of the record for appellate purposes. Bokhoven v. Bokhoven, 559 S.W.2d 142, 144 (Tex.Civ.App.—Tyler 1977, no writ); Poulter v. Poulter, 565 S.W.2d 107 (Tex.Civ.App.—Tyer 1978, no writ). On the other hand, the Houston First Court of Appeals held that a trial court may properly rely upon an unadmitted inventory because the court could have taken judicial notice of it. Vannerson v. Vannerson, 857 S.W.2d 659 (Tex.App.—Houston [1st] 1993, writ denied). The Austin Court of Appeals declined to follow Vannerson, based upon the premise that courts may not take judicial notice of the “truth” of allegations in its records. Tschirhart v. Tschirhar, 876 S.W.2d 507 (Tex.App.—Austin 1994), no writ).
However, this issue appears to have been put to rest by the Supreme Court in Vickery v. Vickery, 999 S.W.2d 342 (Tex. 1999) where the court specifically followed Vannerson and held that a sworn inventory is evidence to be considered by the trial court regardless of its formal introduction at trial. Id. at 371.
C. Adverse Consequences of Inventory
1. Admission against interest
Roosevelt v. Roosevelt, 699 S.W.2d 372 (Tex.App.—El Paso 1985, writ dism’d) held that an inventory was a judicial admission as to the characterization of the property listed, must be accepted as true by the court, and is binding on the party making it. In Roosevelt, Wife’s inventory listed twenty-none items of jewelry, with a value of $15,170.00, as her separate property. She also listed other jewelry as community property with a value of $32,875.00. The court held that, as to those items listed as community property, Wife’s inventory was a judicial admission as to the characterization of that property. “A judicial admission establishes the issue in dispute as a matter of law on behalf of the adversary of the one making such admission.” Id at 374. The party making a judicial admission may not introduce evidence contrary to the admission.
2. Credibility of party
The sworn inventory is a sworn statement as to the assets and liabilities known to be in existence and the values assigned by that party. Thus, while a sworn inventory may not prevent fraudulent concealment or a material under- or over-statement of value, it can provide compelling evidence which may cast serious doubt on the accuracy of the whole inventory and, more importantly, on that party’s credibility.
3. Understated value on inventory constitutes evidence of a meritorious claim or defense for bill of review purposes
In Martin v. Martin, 840 S.W.2d 586 (Tex.App.—Tyler 1992, writ denied), Husband listed as his separate property certain stock with a total value of $2,800,413. A year later, the parties entered into an agreement incident to divorce and an agreed divorce decree. Four months after the divorce, Wife discovered (based upon Husband’s bragging) that the stock was worth $9,000,000 at the time of divorce. Wife file a petition for bill of review and alternatively for division of property, relating to $6,000,000 in retained earnings of Husband’s company, which she alleged was not disposed of in the decree. The retained earnings were approximately eight times the community liabilities shown in Husband’s inventory. Husband argued he was under no duty to update his inventory during the long pendency of the suit. In reversing the trial court and remanding, the court of appeals held the Wife presented prima facie proof of a meritorious claim or defense at the intial prima facie hearing on her petition for bill of review. See also Bryant v. Flint, 894 S.W.2d 397 (Tex.App.—Houston [1st Dist.] 1994, no writ). Bryant is a declaratory judgment action to construe a settlement agreement in a probate action where Husband died during pendency of divorce. Bryant illustrates that statements made in an inventory may be used in other proceedings; Lee v. Johnson, 858 S.W.2d 58 (Tex.App.—Houston [14th Dist.] 1993, no writ).
4. Failure to amend prior to trial may preclude evidence contrary thereto
a. Posey v. Posey, 386 S.W.2d 884 (Tex.Civ.App.—Fort Worth, 1965, no writ) held that failure to amend or correct an inventory precluded evidence at trial to correct the mistake or omission.
b. Ismail, supra, holds that an inventory is a “specie of discovery”; thus, failure to comply with the order is sanctionable. An arguable extension of this is that an inventory must be supplemented 30 days in advance of trial. On the other hand, Tex. R. Civ. P. 166b does not mention inventories as a “permissible” form of discovery and states that the supplementation duty applies to instances where one has “responded to a request for discovery”.
c. See also Martin, supra.
IV. CONTENTS OF THE INVENTORY
1. Matters included:
Each item contained on the inventory will have the following characteristic elements to address:
a. identification of the asset/ debt/ claim
b. characterization of the asset/ debt/ claim
c. value of the asset/ debt/ claim
2. Assets
The more comprehensive and specific your inventory, the more useful the document is throughout the case, from settlement negotiations, mediation, and final trial. Legal descriptions of real property, proper names of retirement benefit plans, account numbers, and so on, should be included. Set forth the calculations pertaining to separate versus community property percentages of assets with community/separate components.
3. Debts
List each liability, with its amount, the number of periodic payments in arrears, if any, the property securing its payment, and the name of the creditor.
4. Claims
a. reimbursement
If there is a claim that the community estate should be reimbursed, the inventory should reflect that claim as a community asset. If there is a claim that one’s separate property estate should be reimbursed, indicate the value of that claims as a separate property asset and a community estate liability.
b. equitable lien claims
Be certain to include all claims for reimbursement that are subject to the equitable reimbursement lien statute.
c. fraud and other tort claims
Particular care should be exercised to insure that interspousal claims are reflected on the inventory. Failure to include them may prejudice the prosecution of the claim. With respect to these “assets”, the practitioner will be faced with the issue of quantifying the amount of the claim.
d. separate property
In addition to value, indicate and explain how you arrived at your characterization, for example, whether the asset was a gift, inherited, or owned prior to marriage, or how it is traceable thereto.
e. contingent claims
Your inventory should correspond with the claims set forth in your pleadings. It may be important to list a pending personal injury suit for example, and state the amount of the damages being sought as the estimated value of such claim. If advantageous to your client’s position, segregate the various components of the claim, for example, segregate the value attributable to pain and suffering, future medical expense, and loss of future earnings which are separate property from past medical expenses and loss of earnings in the past. See sec. 5.01 and 5.02 Tex. Fam. Code. See also Huls v. Huls, 616 S.W. 2d 312, 315-36 (Tex.Civ.App.—Houston {1st Dist.] 1981, no writ).
5. Value
In determining values, one should keep in mind the ultimate standard which will be utilized at trial. “The value of an asset is its market value unless it has no market value.” “Market value” means the amount that would be paid in cash by a willing buyer who desires to buy, but is not required to buy, to a willing seller who desires to sell, but is under no necessity of selling. If an asset has not market value, its value is the value of its current ownership as determined from the evidence.” Texas Pattern Jury Charge 203.1, Supp. 1996. This issue is dealt with at length later in the paper.
The inventory should include values for all items listed, even though the value may be an estimate. When the value is likely to change, indicate that the value assigned is as of a certain date and subject to change. Some temporary orders contain language which prevent the person filing an inventory from indicating “unknown” or “undetermined” in lieu of stating an estimated present fair market value or the amount of any secured or unsecured debt, except for good cause expressly stated on the inventory.
6. Sworn to by the Party, With Reservation
The party must swear to the accuracy of the inventory based upon the information available to and within the personal knowledge of the party. Always make sure that the opposing party’s inventory is sworn. Explicitly reserve the right to amend and change your inventory.
7. Format of the Inventory
a. Local rules
Local rules may mandate the contents and format of your inventory.
b. Family practice manual
Some courts require this format. Most practitioners us this format.
c. Individually formulated format.
Regardless of the format used, the inventory should be tailored to the specific facts of your case. For example, if wife is claiming husband fraudulently disposed of certain community property, she must list it as a community asset on the inventory. Deane v. Deane, 298 S.W.2d 282, 284 (Tex.Civ.App.—Eastland 1957, no writ). On the other hand, if your case involves minimal property, exclude the inapplicable categories so that your inventory is easier to read and less cluttered.
d. Filed inventory vs. unfiled (exchanged) inventory
(1) privacy issues
(2) suspect if receive it from the other side
(3) what are you swearing to?
V. EVIDENCE SUPPORTING INVENTORY
The inventory, as roadmap to your property case, should be backed up by each document as well as personal and expert testimony of value necessary to prove up the contents of your inventory. If it is all separate property, you should have all documents necessary to establish your position in admissible form, in your trial notebook in exactly the order that your inventory is in. The Family Law Foundation has just this year promulgated its Predicates Manual, co-authored by Warrant Cole, Stewart W. Gagnon, and Steven H. Schweitzer, with references which should be in every practitioner’s liabrary and should be consulted regarding the appropriate method of predicating the admission of evidence.
The following is a thorough, although not exhaustive, list of documents and evidence you should marshal to prove up your inventory to value presentation.
A. Real Estate
The original purchase price is some indicator of value of real estate, but if the parties have held the property for any length of time, then reliability of the purchase price as evidence of value will diminish. You should have the warranty deed, deed of trust, real estate lien note, closing statement, and financial institution records of payment.
Tax appraisal value is also some indicator of value. Since tax appraised values are revised on a regular basis, it may be more up to date than purchase price. Tax appraised value, however, is often lower than the actual market value of the property. This varies among jurisdictions. Experts can be helpful in providing local rules of thumb.
A real estate agent may also be a source for information regarding the value of real estate. Real estate agents will be familiar with the selling prices for real estate in the area in which they sell properties. A real estate agent will also know what factors impact positively or negatively the selling price of real property in the particular area. Many real estate agents will often do a market analysis of real property in a divorce often with the hope of marketing the property post divorce. The parties could agree to use a real estate agent to determine the value of a parcel of real estate or a marital residence. The real estate agent may not have the requisite expertise to give an opinion regarding the value of real estate.
The most reliable method for determining the value of real estate, short of selling the property, is having a real estate appraisal performed by a professional real estate appraiser. A “market analysis” may also be utilized prepared by real estate brokers, though its value and admissibility may be questionable. Another cost saving measure would be to agree upon the choice of an appraiser and stipulate that the value arrived at by the appraiser shall be the value for purpose of the divorce. This type of agreement is not without risk. If no such agreement is made, it is likely that two appraisers will be employed. The cost of real estate appraisals for residential property currently ranges from $150.00 to $500.00 per property plus additional expense for time spent testifying in regards to the appraisal.
As with the valuation of all assets, it is important that the attorney know how the expert arrives at the opinion of value of real property. An appraisal manual discusses the issues as follows:
In assignments to estimate market value, the ultimate goal of the valuation process is a well-supported value conclusion that reflects the appraiser’s study of all factors that influence the market value of the property being appraised. To achieve this goal, an appraiser studies a property from three different viewpoints, which correspond to three traditional approaches to value.
1. The value indicated by recent sales of comparable properties in the market—the sales comparison approach.
2. The current cost of reproducing or replacing the improvements, minus the loss in value from depreciation, plus land value—the cost approach.
3. The value of the property’s earning power based on the capitalization of its income—the income approach.
American Institute of Real Estate Appraisers. The Appraisal of Real Estate, 62 (9th ed. 1987). This approach was cited with approval by the Texas Supreme Court in Religious of the Sacred Heart of Texas v. City of Houston, 836 S.W.2d 606, 615-6 (Tex. 1992). Comparable sales is only one of the factors used to determine the market value of real estate. This same approach translates to other types of property being valued.
B. Planes, Boats and Automobiles
For assets such as automobiles, airplanes and boats there are “blue-books” that publish values. Often these publications list loan value, trade-in value and retail value. Given the definition of “market value,” the appropriate value to use is the retail value. Some adjustments should be made based on the condition of the asset. For example, the property make have been exposed the elements without being properly maintained and may have a value well below the “blue-book” value.
If your client is satisfied with the “blue-book” value of the asset, then attempt to get the other party to stipulate to the “blue-book” value of the property. Otherwise, you will need to prepare expert testimony regarding the valuation (the “blue-book” value is hearsay). Any expert would be a local used car dealer.
Always have your expert make a visual inspection of the property. Maybe the boat has a hole in it. Imagine your embarrassment and your client’s reaction when your expert learns of significant factors that negatively impact his opinion of value, for the first time while he is being cross-examined in front of the trier of fact. Again, know your case and make sure that your expert knows his portion of the case.
C. Mobile Homes
As in the case for automobiles, boats, and airplanes there is a “blue-book” quoting the value of mobile homes. Use the same methods for determining value and presenting evidence of value as for a motor vehicle. The mobile home will only have value as personal property if it can be removed from the land.
The mobile home may, however, have become so much a part of the real estate that it may be considered an improvement to real estate and not personal property. Whether the mobile home is no longer mobile and whether it should be treated as an improvement to real estate may be a matter of dispute. However, if the wheels and axles have been removed and rooms have been constructed onto the original structure then it is likely that the mobile home has become part of the real estate. In such a situation, the mobile home’s value will be an improvement to the real estate and will be part of the determination of the value of the real estate. The appraiser that determines the value of the real estate will need to treat the mobile home as an improvement to the real estate and treat it as an element of the value of the real estate in the same manner that would be used with any other structure built upon and permanently affixed to the land.
D. Business
As with all asset valuation, one must consider the various grades of evidence of value as set out above. If there is a market for the business, then evidence of the market value of the property is to be used. Sometimes there is virtually no market for a certain type of business or the other comparable transactions are conducted privately with little or not public disclosure of the terms so that they do not provide information to allow comparison. In such cases some of the other grades of evidence must be explored. Intrinsic value and value to the person have application in the context of a business appraisal, but replacement cost is not applicable.
Books and many articles have covered the subject of determining the value of a business. In this article we will cover the general concepts for business appraisal. In this area of valuation, it is important to prudently select your business appraiser. The American Society of Appraisers, the Institute of Business Appraisers and Technical Advisory Service for Attorneys are good places to begin the search for a business appraiser. One can also rely on other practitioners in the community to recommend an expert. A CPA who appraises businesses and has done forensic work in the past would be an excellent choice as an appraiser. The attorney needs to spend time with both the client and the appraiser, so that the attorney full understands the business and the issues that relate to the determination of the value of the business. Further, the attorney needs to understand completely how the appraiser calculated the value of the business so that the attorney can produce the evidence that will support the experts opinion and so that the attorney will understand how to explain the appraisal to the trier of fact.
1. Revenue Ruling 59-60
The starting point for the determination of the value of a closely-held business is Revenue Ruling 59-60. Revenue Ruling 59-60 was issued to give guidance to the valuation of a closely-held corporation for determining the gross estate for estate tax purposes, but the factors set out in Revenue Ruling 59-60 should be considered in every business evaluation. The factors set out in Revenue Ruling 59-60 are as follows:
1. The nature of the business and the history of the enterprise from its inception.
2. The economic outlook in general and the condition and outlook for the specific industry in particular.
3. The book value of the stock and the financial condition of the business.
4. The earning capacity of the company.
5. The dividend-paying capacity.
6. Whether or not the enterprise has goodwill or other intangible value.
7. Sales of the stock and the size of the block of stock to be valued.
8. The market price of stocks of corporations engaged in the same or a similar line of business having their stocks actively traded in a free and open market, either on an exchange or over-the-counter.
There are several categories of methodologies for the valuation of businesses. The methods utilized by business appraisers in determining the value of a business are the income method, the market method, the cost/asset method and a few others.
2. Goodwill; Non-competition
There are certain issues that may not be considered when determining the value of the business. In determining the value of the business, the trier of fact is not to consider personal goodwill or the value of time and labor to be expanded after the divorce. Texas Pattern Jury Charge- Family, PJC 203.2(1998). The trier of fact may, however, consider commercial goodwill that is separate and apart from personal goodwill. Id. The Pattern Jury Charge relies on the Texas Supreme Court opinion in Nail v Nail, 486 S.W.2d 761 (Tex. 1972) and its progeny to support the instruction to the jury that personal goodwill not be considered in the valuation of a business. In Geesbreght v. Geesbreght, 670 S.W.2d 427 (Tex.Civ.App.—Fort Worth 1978, writ dism’d), the Court of Appeals indicated that the entity itself may have goodwill separate and aprt from the personal goodwill of the individual and that commercial goodwill could be included in the value of the business.
To determine whether a business has goodwill that would be subject to division in the divorce, the trier of fact must apply the two-pronged test set out in Finn v. Finn, 658 S.W. 2d 735 (Tex.App.—Dallas 1983, writ ref’d n.r.e.).
First, goodwill must be determined to exist independently of the personal ability of the professional spouse. Second, if such goodwill is found to exist, then it must be determined whether that goodwill has a commercial value in which the community estate is entitled to share.
Finn at 741. It should be noted that in Finn the husband attorney’s partnership agreement defeated the wife’s attempt to be compensated for the value of commercial goodwill of her husband’s partnership interest. Id. The partnership agreement did not allow husband to be compensated for the commercial goodwill of the partnership in the event of his withdrawal. Id. Since husband had no right to be compensated by the partnership for the value of the firm’s goodwill, it had no commercial value to him. Id. at 742. Therefore, the firm’s goodwill was not an element of the value of husband’s partnership interest in which the community estate was entitled to share. Id.
The Texas Supreme Court in a non-family law case endorsed the Court of Appeal ruling in Geesbreght. Salinas v. Rafati, 948 S.W.2d 286 (Tex. 1997). According to the Supreme Court the earning capacity of a partner is not a divisible partnership asset. Id. at 290. Although Nail, Geesbreght and Salinas all involved professionals, the exclusions of personal goodwill has also been applied in cases involving non-professionals. See Rathmell v. Morrison, 732 S.W.2d 6 (Tex.App.—Houston [14th Dist.] 1987, no writ); Finch v. Finch, 825 S.W.2d 218 (Tex.App.—Houston [1st Dist.] 1992, no writ).
In Rathmell the Court of Appeals suggested that the jury should also be instructed not to consider the spouse’s willingness not to compete with the business. Rathmell, 732 S.W. 2d at 18. Although the portion of the Rathmell instruction regarding the spouses willingness not to compete is included in the comments to PJC-203.2, it was not included in the body of the PJC0-203.2. The instruction, however, would seem appropriate considering that the trial court cannot order a spouse not to compete as part of a divorce. Ulmer v. Ulmer, 717 S.W.2d 665, 667 (Tex.App.—Texarkana 1986, no writ).
3. Ajustments
Often the community estate does not own the entire business. If the business has owners, shareholders, or partners other than the parties to the divorce, adjustments might need to be considered in determining the value of the portion of the business owned by the community estate. For example, if the community owns a controlling number of share in a corporation, then it may be appropriate to adjust the market value of each individual share by a control premium. A control premium may be added to a controlling block to reflect that “[t] per share value of a minority interest is less than the per share value of a controlling interest.” Estate of Salsburg v. Cimmissioner, 34 T.C.M. 1441 (1975). In addition, adjustments may be appropriate based on marketability and minority discount. If the business interest involved in the divorce is less marketable than an otherwise comparable business interest then there should be a downward adjustment due to the lower liquidity. If the business interest is a minority interest then there may be a need for adjustment depending on the degree of control possessed by the minority interest in the subject business entity. The foregoing adjustments are discussed in more detail in Patrice Leight Ferguson, CPA, J.D.’s article entitled, “Business Valuations in Divorce,” presented at the 1995 Family Law Course.
E. Franchises
A franchise is a contract that allows an individual or business entity (a franchisee) to market goods or services under the name of another business entity (a franchisor). All of the same elements considered in valuing an independent business should be considered in valuing a Franchise. In addition, the attorney and the expert should carefully study the Franchise Agreement and history of the franchisor and make appropriate adjustments.
F. Retirement Benefits
For most middle class clients, the community asset with the greatest value is the Retirement Benefits of one or both spouses. There are basically three types of Retirement Benefit Plans:
1. The Defined Contribution Plan
This type of plan will pay the employee a certain amount periodically following retirement. The amount of the periodic payment is determined by a formula that normally includes years of service, salary amount, age, etc. A surviving spouse option may also be available that will allow the employee to elects to take a small periodic payment to insure that her spouse will continue to receive payments if the employee spouse predeceases. The expert will need to consider mortality, potential forfeiture of benefits, and current interest rates in determining the value of the Defined Benefit Plan. An actuary or CPA will normally be able to determine the value of the Defined Benefit Plan. Make sure that the expert that you hire has experience in valuing Defined Benefit Plans. It would also be helpful to contact an insurance agent and try to determine the cost of a single premium annuity with benefits identical to the Plan that is being valued.
2. The Defined Contribution Plan
This type of plan does not provide a specific amount of benefit upon retirement, but involves the investment of employee compensation (generally tax-deferred) into individual accounts for the benefit of the specific employee. Often the employer will make additional contributions to the employee account. Often the employee is allowed to control the investment of the Plan funds. Often the Plan funds are invested in employer stock and profit sharing plans. Upon termination, the employee fund is paid by lump sum or installments to the employee. If the termination is prior to retirement age the employee may also roll the funds over to another tax deferred account to avoid paying tax and penalties for early withdrawal of the funds. The Defined Contribution Plan account is held in the employees name and statements of the balance of the account are regularly provided to the employee. Thus the value of a Defined Contribution Plan is normally fairly easily calculated.
3. A Hybrid Plan
This type of plan is a combination of the Defined Benefit Plan and the Defined Contribution Plan. The Texas Employee Retirement System (ERS) Plan is such a plan. At retirement the employee has the option of taking a lump sum payment that represents the employee contributions plus income on those contributions or an annuity payable to the employee that is based on months of service and the salary of the employee for a period of time immediately prior to retirement. With the ERS Plan the election is that of the employee. Depending on the election of the employee the value of the benefit may vary greatly.
4. What Portion of the Retirement Benefits?
When valuing Retirement Benefits, always bear in mind that only the portion of the benefit earned during marriage is divisible upon divorce. Taggart v. Taggart, 552 S.W.2d 422,424 (Tex. 1977). Additionally, when value of the community retirement benefits is at issue, “the benefits are to be apportioned to the spouse based upon the value of the community’s interest at the time of the divorce. Berry v. Berry, 647 S.W.2d 945, 947 (Tex. 1983). A CPA and/or an actuary should be able to determine the value based on information received from the party’s employer or the trustee of the party’s retirement plan. As in other situations make sure that the expert is in fact an expert and has experience valuing retirement benefits for the purposes of testifying regarding value in divorce cases.
5. Do Not Trade Retirement Benefits for Hand Assets
When settling a case or requesting a division of a marital estate by the court, it is important to bear in mind that retirement benefits should not be traded dollar for dollar for hard assets. A house with a net value of $200,000 can be sold shortly following the divorce, but the retirement benefits may be unavailable or may result in severe tax penalties if accessed shortly following the divorce. If the retirement benefits will not be available until some time in the future their value should be discounted. In addition, defined contribution accounts are often tax deferred and the potential tax upon withdrawal and penalties for early withdrawal should be taken into account in determining the value of the retirement benefits. At least one Court of Appeals, has opined that the potential tax impact of early withdrawal of retirement benefits or the taxes that will be due on tax deferred retirement benefits need not be considered by the trial court, because such consideration would require speculation and surmise regarding whether or not there will be an early withdrawal or the future tax bracket of the party awarded the benefits. Grossnickle v. Grossnickle, 935 S.W.2d 830, 847-8 (Tex.App.—Texarkana 1996, writ denied). This opinion would seem to ignore the reality that there will be some taxes due on the tax deferred benefits, although there may be some question of exactly what the tax will be. The problem can be avoided by dividing the retirement benefits proportionately along with the other significant assets, but sometimes that is not what the client wishes to do. It is important to advise the client about the adjustments to value discussed so that they can make an informed decision of how to divide the assets.
If the client will need cash flow post divorce, but there does not seem to be a way to provide it, it may be possible to provide a cash flow from tax deferred retirement accounts without paying the ten percent penalty for early withdrawal. Pursuant to §72(t)(2)(A)(iv) “[d]istributions that are part of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary.” Even if the penalty for early withdrawal can be avoided, there will still be need to pay income tax (at the client’s applicable rate) on the withdrawals. Get the advice of a CPA and/or a tax attorney when exploring the potential use of tax deferred accounts for cash flow prior to the client attaining 59 1/2 years of age.
G. Intangible Assets: Copyrights/ Patents/ Service Marks/ Trade Marks/ Trade Names/ Trade Secrets
These intangible assets may have value of their own or they may impact the value of a business entity owned by one of the parties that owns the intangible asset or the rights to use the asset. The determination of the value of these types of intangible assets is always difficult and it is important to consult an attorney who specializes in this area of law. An intellectual property specialist should also be able to assist in locating an expert witness to testify regarding value. James E. Farris’ article entitled, “Unusual assets: patents, licenses, royalties,” presented at the 1993 Advanced Family Law Course.
1. Copyright
A copyright owner has the exclusive right to reproduce, distribute, publicly perform and display, and to prepare derivative works for a limited time.
2. Patent
A patent is a document issued by the United States Patent office that grants the right to manufacture, use and market an invention or discovery for a specific period of time.
3. Service Mark
The Texas Business and Commerce Code defines a service mark as a “word, name, symbol, device, slogan or any combination thereof which, whether registered or not, has been adopted and used by a person to identify his services and distinguish them from the services of others, and includes the titles, designations, character names, and distinctive features of broadcast or other advertisement. Tex. Bus. Com. Code, §16.01.
4. Trademark
The same code section defines a trademark as a “word, name, symbol, devise, slogan, or any combination thereof which, whether registered or not, has been adopted and used by a person to identify his goods and distinguish them from the goods manufactured or sold by others.” Id.
5. Trade Name
A trade name “includes an individual name, surname, firm name, corporate name, and lawfully adopted name or title used by a person to identify his business, vocation, or occupation. Id.
6. Trade Secret
According to the Texas Supreme Court, “[a] trade secret is any formula, pattern, device or compilation of information which is used in one’s business and presents an opportunity to obtain an advantage over competitors who do not know or use it.” Computer Associates International, Inc. v Altai, Inc., 948 S.W.2d 453, 455 (Tex. 1994). To be a protected interest, the trade secret must in fact be secret. H. E. Butt Grocery Company v. Moody’s Quality Meats, Inc., 951 S.W.2d 33, 35 (Tex. App.—Corpus Christi, 1997, writ denied).
H. Crops/Timber/Livestock
If your client owns crops, timber and livestock, it is likely that the client has some experience in buying and selling such assets. Hence, the client is often very helpful in determining the value of such assets. These types of assets are bought and sold regularly and there should be a local market for such assets. Additionally, there should be available local publications that list the recent market prices for similar assets. A local auctioneer would also be helpful in determining the value of such assets.
I. Show Animals
Many people raise, breed and show cats, dogs, horses, etc. Just like with owners of livestock, these clients should be very helpful in determining the value of the animals in question. In addition, it should be considered whether the animals should be valued separately or whether they should be valued as a component to a business enterprise. Such a determination will depend on the particular circumstance. These are various organizations that set rules and register such animals and these organizations would be a valuable source for locating an expert regarding valuation of such animals.
Although you may want the expert to testify before the trier of fact, some cost might be saved by deposing your own expert so your client does not pay him to sit around in the hall at the courthouse, although most of the time this can be prevented by making arrangements to call witnesses out of order to accommodate schedules.
J. Art, Antiques and Collectibles
People collect many things. For virtually everything people collect an expert can be located to appraise the collection. Ideally the appraiser would have expertise in the area of the specific types of items in the collection being appraised. If the collection is large and diverse, decisions must be made as to whether to use an appraiser with general knowledge to appraise the entire collection or multiple appraisers with more specialized knowledge regarding various areas of the collection. The perceived value of the collection may dictate what budget is appropriate for the development of expert testimony regarding the collection.
When performing the appraisal, the appraiser should consider the value of the collection as a whole as well as the value of individual items. Sometimes a collection may have a value greater than the sum of its parts. Other times an individual piece may be more marketable than the collection.
The appraiser should bear in mind the same three traditional approaches to value as used in the valuation of other types of property such as real estate:
1. The sales comparison approach:
If comparable items are being offered for sale or have been sold, research the pricing and reported sales;
2. The cost approach:
Cost to reproduce (if possible), less depreciation, or replace the item; and
3. The income approach:
Would only apply if the item is income producing.
K. Household Goods and Clothing
It is unnecessary to prove “market value” of household goods and clothing. There is an exception to the general rule, an that is that one must prove market value or establish prima facie that there is no market value when it comes to second hand household goods, clothing and personal effects. Crisp v. Security National Insurance Co., 369 S.W. 2d 326, 329 (Tex. 1963); Rosenfield v. White, 267 S.W.2d 596, 599 (Tex.Civ.App.—Dallas 1954, writ returned n.r.e.). In such cases, the appropriate grade of evidence of value is the value to the owner. Id.
Normally personal items have very little value, although there may be an area of contention between the parties. Carefully weigh with the client the cost of developing evidence, other than the client’s inventory and appraisement before the exchange of inventories with the other side.
L. Employee Benefits (Other than Retirement Benefits)
Employers offer employees various benefits in addition to salary, vacation, continuing education and retirement benefits. Many employers offer employees “stock options.” A “stock option” is the right to buy stock in the future at a certain price which is anticipated to be below the market price at the time. Some employers provide “stock appreciation rights.” “Stock appreciation rights” pays the employer the difference between the stock price on the date of the grant and on the day of exercise. Another type of benefit is the “Phantom Stock.” The employee is treated as having acquired stock and the employer pays the difference in price between the day of grant and the day of exercise.
Many employers pay bonuses. Bonuses may be based on individual, group or company performance. Bonuses may be paid monthly, quarterly, annually or irregularly.
The difficulty in valuing these assets comes when they are granted, vested or exercised outside of the period of the marriage. The problem can arise when a stock option is granted prior to the marriage or when a benefit will not be exercised until after the date of divorce, because the benefit is unmatured or non-vested. Care must be taken to analyze the purpose of the benefit. Is the benefit intended to compensate for past service or to insure future service?
The San Antonio Court of Appeals held that unvested stock options granted during the marriage are “a contingent interest in property and are a community asset subject to consideration along with the other property in the disposition of the parties’ estate.” Bodin v. Bodin, 944 S.W.2d 380 (Tex.App.—San Antonio 1997, no writ). To the San Antonio Court of Appeals knowledge, “every community property state that has considered this issue has agreed with the conclusion of law” reached by the court in Bodin. Id. at 381.
The Bodin opinion does not, however, address the issue that the stock option is likely contingent on continued services that one of the parties may provide her employer post divorce. Compensation for services post divorce is not community property. It would seem that if the right to exercise the stock option is contingent on services to be performed in the future, then at least a part of the stock option is compensation for future services. Therefore, a portion of the value of the stock option is based on separate property (post divorce compensation) of one spouse. The various formulas adopted in other jurisdictions is thoroughly discussed in James E. Farris’ article entitled, “Unusual assets: patents, license, royalties, intellectual properties, incentive stock options and certain employer employee rights,” presented at the 1993 Advanced Family Law Course.
Given the rate of increase in some stocks, especially in the high tech industry, stock options may be a very valuable asset. The first case relied on by the Court in Bodin is In Re the Marriage of Hug, 154 Cal. App. 3d 780, 201 Cal. Rptr. 676, 678-81 ([1st Dist.] 1984). Although the Court treated the stock options as community property, they used a Berry type formula to determine what portion was community property. Review the cases cited in the Bodin case and the theories discussed in Jim Farris’ article and determine which theory is best for your client. Given the current sate of the law in Texas on stock options, there is plenty of room for creative lawyering.
M. Tort Claims
Torts, such as fraud on the community, spoliation of evidence, and assault and battery, should be listed and valued in the same manner as any other tort action.
VI. TODAY’S DISCOVERY AVENUES FOR DOCUMENT PRODUCTION
In November of 1998, the Texas Supreme Court made their final approval of revisions to the Texas Rules of Civil Procedure that included substantial changes to discovery procedure. Along with those changes came a necessity to revise old discovery forms, and create a few new ones to assure compliance with the new rules. Just like the new discovery rules, your discovery forms, both outgoing and responsive, should be prepared with the goal of satisfying the Texas Supreme Court's intent to modernize, clarify, and limit your discovery practice, hopefully having the effect of streamlining the discovery process itself. For example, modernize your discovery forms by creating an official discovery subpoena issued directly by you, without the necessity of going to the courthouse. Limit your outgoing interrogatory forms to exclude questions contained in your disclosure requests. After all, under the new rules, you are allowed only twenty-five interrogatories, including subparts, so why waste even one of them on an inquiry that can be satisfied elsewhere? Clarify your interrogatories to exclude any requests to divulge all evidence that will be used at trial, or any language similar to that, as this is an unacceptable and therefore objectionable inquiry. Intentionally including inquiries or requests that are clearly subject to successful objection is a waste of paper and time, and may subject you to sanctions. These are just a few instances of how the modern family law attorney needs to refine his or her discovery forms. The purpose of this paper, however, is to address specific application of the new rules to property discovery as they apply to drafting. The primary focus is to address all types of discovery forms, including the language of discovery forms as associated with collecting information pertaining to the division of the marital estate.
A. Requests for Production
(Subpoenas, Deposition Notices, and Requests for Production)
1. Incorporation of All Rules For Production
The production of documents is a prime function of the discovery process. Document production is provided for by several different methods within the rules of discovery, including subpoenas, deposition notices, and document production requests to parties and nonparties. The new rules of discovery have incorporated all of these methods into each other. Thus, when requesting documents through a subpoena duces tecum, the requesting party must comply with the production requirements set forth under the sections applying to deposition notices and requests for production (to parties and nonparties) as well. This incorporation of all rules is discussed elsewhere in this presentation.
Because the different types of methods to request production are very similar, yet different in some ways, it is difficult to avoid being redundant when addressing all of the available options for production requests, yet all of them require a separate form in one way or another. We have made our best attempt at dodging this problem by addressing the actual form for the documents to be requested separately, as this form can be attached or incorporated, in part or in full, to any type of request for production. The methods available for requesting production are each addressed separately thereafter, but you must keep in mind that the rules contained in each method apply to the other.
2. List of Documents Requested
The most important part of the Request for Production and Inspection of Documents, Subpoena Duces Tecum, and Deposition Notice, for purposes of this paper, is the complete list of all of the documents being requested. Other requirements and suggestions for such forms will be discussed elsewhere below, but the actual document request itself should encompass every possible definition without exceeding the limitation of boundaries provided by the rules of discovery. The Texas Supreme Court, in its commentary on the scope of permissible discovery cited to case law, stating "While the scope of discovery is quite broad, it is nevertheless confined by the subject matter of the case and reasonable expectations of obtaining information that will aid resolution of the dispute. The rule must be read and applied in that context." Does anyone know what that really means? Thus, we find ourselves asking for everything, and waiting for the objection and subsequent hearing on motion to compel. The best thing to ask yourself is the request itself reasonable and relevant under the facts and circumstances of your case. As I am limited, thankfully, to property discovery in this paper as opposed to custody discovery, it is easier to at least get an idea of what is "reasonable." With that in mind, following is a document request that we have compiled over a period of years based upon requests that we have made and requests that we have received from various attorneys. Do not include everything on this list in your request for production unless you have a need for it.
Sample Duces Tecum
a. Driver's license. A copy of your current driver's license.
b. Social Security number. A copy of your social security card or number.
c. Depository Records. Any and all books, documents, or instruments, including but not limited to, canceled checks, bank statements, passbooks, monthly statements, savings records, certificates of deposit, check stub records, check registers, deposit slips, deposit tickets, withdrawal tickets, books and records of accounts, and all other depository records pertaining to all accounts in banks (accounts being checking, savings, money market accounts, cash management accounts, certificates of deposit, or otherwise), loan associations, credit unions, co-ops, or other financial institutions or savings plans, which stand in your name alone, or in your name and your spouse's name, or in your name jointly with others, or which are subject to your withdrawal or control, or over which you and/or your spouse had signatory authority or any beneficial interest in at any time during the relevant time period, regardless of whether or not the account or accounts have been closed, regardless of whether or not same is or was a joint account or your account individually or business account, business or otherwise, or an account maintained for you, and/or your spouse by someone other than yourself, regardless of whether or not you and/or your spouse presently have signatory authority with reference to the same, or such account still is in your name or exists and including documents that provide information as to the source of the account style, account number, depository information, maturity date, if any, current status and balance and, if closed, the date of closing, amount of funds transferred therefrom, and where said funds went.
d. Safety Deposit Boxes and Vaults. A listing and any and all other documents and financial records relating or pertaining to any safe deposit box rented or maintained by you, or in which documents or property owned by you were kept, or in which you have had any beneficial interest since _____. This list should contain the location of and the dates during which each box or vault was maintained, the numerical description of such box or vault, a complete itemization and valuation of the contents thereof, and the name in which such box or vault was maintained. Additionally, you should produce all signature cards and a full and complete list with respect to each such box or vault showing everything that was placed therein and everything that was removed, including the dates of such deposits or withdrawals.
e. Financial Statements. The original of, or true, legible, complete and accurate copies of each and every personal financial statement prepared or issued by or for you and/or your spouse for any purpose during the relevant time period, regardless of whether they were issued to a financial institution, together with the name and business, address, and telephone number, of each and every person, firm, company, bank, organization, corporation, proprietorship, partnership, joint venture, or association to whom such financial statement has been issued, prepared and/or presented by or for you and/or your spouse during the relevant time period.
f. Retirement Benefits. Any and all books, records, documents, or instruments, pertaining to any retirement plan, pension plan, profit-sharing, Keogh plan, Individual Retirement Accounts, stock purchase rights, thrift plan, PAYSOP, ESOP, employee benefit plan and credit union other employee benefit plan which you own or have owned any interest (or claim to own any interest), throughout the relevant time period, whether vested or contingent, including, but not limited to, the following information:
(1) the complete name of the plan, benefit, or rights;
(2) the date of the inception of your interest therein;
(3) its beginning or current fair market value, and whether or not related to any employment benefit;
(4) the date of first employment;
(5) the name of employer;
(6) a copy of the plan;
(7) all statements of the employer's contributions and/or your contributions throughout the relevant time period;
(8) any and all documents and financial records providing information so as to allow my client to completely evaluate same.
g. Benefits Furnished. All documents or financial records relating to each and every benefit that you have received, enjoyed or been furnished throughout the relevant time period, by any employer, and other person (including, without limitation, your spouse, your parents, any friend relative or third party), or by any business entity.
h. Income. Any and all records, books, documents, and instruments pertaining to or reflecting gross and net monies earned, received, or accrued by you from any source whatsoever during the relevant time period, including, but not limited to, wages, salary, payroll receipts, straight-time earned, overtime earned, bonuses, commissions, unemployment compensation, dividends, interest, proceeds from the sale or exchange of property, royalties, rental income, gifts, expense reimbursements and accounts, all other perquisites and fringe benefits, and including, but not limited to, all check stubs, earning statements, vouchers, reports, payroll records and W-2 forms, reflecting all deductions
i. Business Expense Records. The originals of, or true, legible, complete, and accurate copies of, any and all documents, instruments or other papers reflecting expenses paid by you and/or your spouse or on your behalf during the relevant time period, in connection with any business or pursuit of gain or profit.
j. Expense Reimbursement. Schedule of all expenses which you have submitted to your employer for reimbursement along with an itemization of such reimbursement that are made since _________.
k. Gifts, Inheritance, and Bequests. Any and all records, information and explanation with reference to the receipt of and the use of all monies received by you or your spouse through gifts, inheritance, bequests and trusts since ____________. Such explanation and information should show with respect to all monies received or other property received in this manner, when it was received, from whom, in what accounts any such money was deposited, how such money was used or spent, and when and what was purchased with the money.
l. Trusts. The originals or authentic copies of any trust instruments, wills, books, records or documents (including, without limitation, copies of all statements, disbursement records, accounts, inventory and appraisement, and tax returns) in which you and/or your spouse are or were grantor, seller, trustee or beneficiary throughout the relevant time period.
m. Probated Estate. Any and all records, documents and instruments pertaining to any estate in probate in which you are designated as distributee, including but not limited to, copy of the will, inventory and appraisement, and letter stated when distribution may be expected and probable amount that will be received by you.
n. Gifts. Any and all records, documents and instruments reflecting any and all gifts, loans, or other benefits received by you during the relevant time period, including, but not limited to the value of such item, date such item was given, and reason such item was given.
o. Travel. Any and all books, records, documents, and instruments which evidence any trips taken by you outside of the Dallas/Fort Worth area during the relevant time period, including, but not limited to, credit card statements and airlines ticket stubs for you and whomever you traveled with.
p. Paid-off Indebtedness. Documentary or other tangible evidence of all indebtedness paid by you since __________.
q. Loans. The original of, or true, legible, complete, and accurate copies of each and every loan and loan application made by or for you and/or your spouse for any purpose during the relevant time period, including each and every pro forma, income project and item of correspondence sent or received in connection therewith, together with the name and/or business name, address, and telephone number for each and every person, firm, company, bank organization, corporation, proprietorship, partnership, joint venture, association, govern-mental entity, or educational institution with whom any such loan was made or to whom such loan application was submitted by or for you and/or your spouse at any time during the relevant time period.
r. Promissory Notes, Installment Notes, Etc. All promissory notes, installment notes, drafts, bills of exchange or other orders for the payment of money, or changes in action due or payable, in whole or in part, directly or indirectly, legally or beneficially to you or in which you claim or have claimed an ownership interest since __________.
s. Charge Account Records. Any and all books, records, documents, or other instruments, including, but not limited to, account balances, receipts, credit applications, credit cards, monthly statements, itemization of charges, and any other documents relating to any open accounts, charge accounts, credit card accounts, issued to either you and/or your spouse throughout the relevant time period, or over which you and/or your spouse exercised dominion or control, were an authorized signatory or on which you made charges, together with all documents containing an itemization or explanation of the charge and all payments made, and all accompanying correspondence with each statement, including but not limited to: [specify accounts if known]
t. Guarantees. All documentation relating to or reflecting guarantees by you of payment of indebtedness which is or was the obligation of another person or entity since ___________.
u. Mortgage Indebtedness. All documents relating to any mortgage indebtedness payable on our homestead showing the method of repayment required, the date of the mortgage, to whom the mortgage payments are payable, the amount of reserves, the present status and balance of such loan, along with a copy of the mortgage note or notes on the house and deed of trust or other encumbrances to title.
v. Vehicle Ownership. Any and all books, records, documents, or instruments pertaining to all motor vehicles, boats, aircraft, recreational vehicles, motor-cycles, trailers, and other motor powered equipment or vehicles owned (presently or at any time during the relevant time period) or claimed in whole or in part by you and/or your spouse at any time throughout the relevant time period, including documentation showing at least the following information in regard to each item:
(1) document of title;
(2) contract of sale;
(3) any mortgages, liens, or debts against the property;
(4) the complete property description;
(5) date of acquisition;
(6) the fair market value;
(7) date the property was sold;
(8) funds received on the date of sale;
(9) where the funds were placed, spent or deposited;
(10) the tax basis of the property; and
(11) the name of the legal, equitable and beneficial owner of the property.
w. Realty Instruments, Excluding Mineral Rights and Oil and Gas Rights. Any and all books, records documents, or instruments, including, but not limited to deeds, deeds of trust, contracts of sale, leases, liens, closing or settlement statements, mortgages, and promissory notes, pertaining to any and all real property interest for the relevant time period, including, but not limited to, leasehold interest owned in whole or in part by you and/or your spouse, or in which you and/or your spouse have or claim to have legal or equitable title, including without limitation, documentation showing the following information regarding each item of real property:
(1) the complete property description;
(2) the date of its acquisition;
(3) its fair market value;
(4) all debts secured by it;
(5) copy of any and all pending contracts for sale or other contracts;
(6) copy of any and all contracts presently being negotiated by the parties;
(7) its tax basis; and
(8) the legal, equitable or beneficial ownership in said property.
x. Promissory Notes, Installment Notes, Etc. All promissory notes, installment notes, drafts, bills of exchange or other orders for the payment of money, due or payable, in whole or in part, directly or indirectly, legally or beneficially to you or in which you claim or have claimed an ownership interest since _________.
y. Mineral Rights/Oil and Gas Rights. Any and all books, records, documents, or instruments, including documents of title, relating to all oil and gas or other mineral interests in which you and/or your spouse own or have owned during the relevant time period, whether legal, equitable, and/or beneficial, and all records concerning the nature of such interest (whether leasehold, working interest, royalty, overriding interest, net profit interest, or other forms of interest). Such information to include, but in no way be limited to, the following:
(1) field name;
(2) county in which located;
(3) lease name;
(4) operator name;
(5) Railroad Commission or other I.D. number;
(6) your share of expenses paid;
(7) your revenue or income for all such properties;
(8) a complete description of the rights;
(9) the date of acquisition;
(10) its fair market value;
(11) all debts secured by it, if any;
(12) its tax basis;
(13) copy of any and all contracts for sale or other contracts;
(14) copy of any and all contracts presently being negotiated by the parties;
(15) closing or settlement statements; and
(16) the legal, equitable or beneficial ownership of same.
z. Real Property Interest Held Through Partnership or Joint Venture. Any and all books, records, documents, or instruments, including, but not limited to, any and all deeds, deeds of trust, contracts of sale, leases, liens, security agreements, closings or settlement statements or documents, mortgages, and promissory notes, pertaining to any and real property interest, including, but not limited to, leasehold interest owned in whole or in part by you and/or your spouse or in which you and/or your spouse have or claim to have legal or equitable title during the relevant time period, including without limitation, documentation showing the following information regarding each item of real property;
(1) copy of partnership joint venture agreement;
(2) all joint venture contracts;
(3) all carried interest in said contracts and real estate transactions;
(4) documents relating to the carried interest in any joint ventures;
(5) copies of any and all pending contracts for sale or other contracts;
(6) copies of any and all contracts presently being negotiated by the parties;
(7) names and addresses of all partners or co-venturers;
(8) the legal, equitable or beneficial ownership in said property.
aa. Stocks and Bonds. Any and all books, records, documents, and instruments pertaining to all stocks, stock options, bonds, commodities or other securities in which you own or have owned any interest, legal or equitable, including, but not limited to, original bonds, shares or certificates, collateral pledge agreements, buy-sell agreements, statements and confirmation slips from brokers from ___________ to the present.
bb. Investments. Any and all books, records, documents, or instruments pertaining to all investments of any and all kinds that you and/or your spouse have made of any type and nature throughout the relevant time period, including without limitation, those made in any governmental entity, privately-held corporations, publicly-held enterprise or entity in which you and/or your spouse own or have owned any interest, legal, equitable, or otherwise, or in artwork, coins, automobiles, firearms, furniture and any other personal property, and real estate, including but not limited to, the following information:
(1) any and all books, records, documents, or instruments relating to stock brokerage firms through which you have traded or purchased securities, including monthly statements, printouts, and all correspondence;
(2) all stock certificates, bond certificates, government securities, private securities, stock brokerage statements, list of shares or collateral pledge agreements and buy-sell agreements, other instruments registered in the name of you and/or your spouse or representative, or a nominee of you and/or your spouse or any of your and/or spouse's business interests, evidencing your or your spouse's ownership of any and all such investment;
(3) any and all documents, instruments and other papers reflecting purchases and/or sales of any type of stock, bond, debenture, warrant, option, commodity partnership interest, or other security by you and/or your spouse's nominee or representative, or by any one of t he business interests in which you and/or your spouse are involved;
(4) records of each and every security or investment transaction made in any name used by you and/or your spouse, made by you and/or our spouse or on behalf of you and/or your spouse by any of your and/or you spouse's nominees or representatives or on behalf of any business interest in which you and/or your spouse are involved. This request is to include production of the actual documents or certificates of ownership evidencing ownership, and all booklets, plans, printouts, reports, summary statements of benefits, restatement of benefits, statement of accounts, restatements of accounts, evidence of benefits, dividends, or interest accrued or paid out of or for each through the nominee or representative or any investment made through any business in which they are involved, whether current, not current, presently in force, canceled, surrendered, in existence, or otherwise. This request also includes documentation which shows a complete description of the investment, the date of acquisition of the asset, the date of the sale of the asset, the capital gain or loss recognized by same, whether or not the original capital gain recognized was reported to the Internal Revenue Service;
(5) the fair market value of the stocks currently held or held at any time throughout the relevant time period by you and/or your spouse;
(6) list of all debts secured by each such investment;
(7) the tax basis , value at time of deposition or current value of each such investment;
(8) the name of legal, equitable, and beneficial owner of each such investment asset;
(9) documents and financial records that clearly identify and describe the nature and type of investment, the period for which it was held, its cost, the current status of same, the value of same throughout the time that it was owned or held by you or on your behalf, its liquidation or closing value, the amount of proceeds received at divestiture and where such proceeds went.
cc. Any Other Property Interests. All documents or financial records reflecting any interest held or possessed (beneficial or otherwise) by you in any other type of investment, asset, or property interest, whether or not in your name, and including any property or property interest that you used or over which you exercised any type of dominion or control, throughout the relevant time period and heretofore otherwise requested or produced.
dd. Insurance. Any and all books, records, documents, or instruments, regarding each and every insurance policy for life, health, disability, liability, fire, and casualty loss (pertaining to home, automobiles, boats, trailers, aircraft, recreational vehicles, vehicles of any type, nature or character, motorcycles, personal property, livestock, realty, stocks, bonds, art, coin, or any other collection, or any assets of any other type) for property or property interest owned by you and/or your spouse throughout the relevant time period, as well as insurance policies owned or claimed in whole or in party by you and/or your spouse or in which either or both of you have claim to have legal or equitable interest, or have paid any premium on during the relevant time period, including at least the following information with regard to each policy:
(1) the name of the issuing company;
(2) its date of issuance;
(3) its present cash surrender value;
(4) the name of the beneficiaries;
(5) the extent of the benefits (coverage) it provides or the face amount of its benefits;
(6) the name of the insured person or item of property;
(7) a copy of each policy; and
(8) the dates and amounts of any loans against or disbursement from said policies, and where any proceeds from such policies went.
ee. Life Insurance. All life insurance policies on your life, your spouse's life, of which you or an owner of beneficiary, legally or beneficially, including any certificate or certificates of group insurance, whether owned by you individually or taken out on your life by a Trust, corporation or other entity, and all documents evidencing cash values of and loans against such life insurance policies, including the date such loans were insured the amounts thereof, and all records of repayments thereof, in whole or in part.
ff. Insurance Proceeds. Any and all books, records, documents, and instruments relating to any proceeds received from an insurance policy.
gg. Capital Gains Taxes. Any and all books, records, documents, and instruments which reflect any income or capital gains on which taxes have been paid for the calendar years __________.
hh. Individual Tax Returns. Complete copies of each and every individual (including, without limitation, tax returns in which you filed a separate return and/or married, filing jointly) federal or state income tax return filed by you and/or your spouse or in your behalf for calendar years _______ through _________, together with any and all schedules or attachments, and including any and all amendments submitted with reference to any return, plus all documents and worksheets used in connection with the preparation of same, and, if any such return for any year has not yet been prepared, then all worksheets and all supporting data including, but not limited to W-2 forms, 1099 forms and other evidence of earnings for that year you and/or your spouse contemplate possible using in order to compile and formulate each of such returns.
ii. Notice of Unpaid Income Taxes. Any and all records, documents, instruments, or notices of unpaid income taxes.
jj. Personal Correspondence. All correspondence, cards, notes, other writings, papers, and memoranda addressed to you from ________, and copies of all correspondence, cards, notes, other writings, papers, and memoranda addressed to ____________ from you.
kk. Diaries, Etc. Any and all notes, diaries, calendars, journals, memoranda, and other type of personal notations made by you since __________.
ll. Employment Contracts. All written employment contracts, agreements, letters, or other instruments for any employment you have had throughout the relevant time period and any further employment, together with the details for any non-written contracts of employment and of any negotiations under way for any future employment which reflect overtime compensation, Christmas or other bonuses, deferred compensation, business expenses paid by employer, other receipts arising out of employment, life insurance, hospital insurance, medical insurance, vacation and sick-leave benefits, severance pay, pension/retirement/profit sharing plans, and rights to purchase stock in the employer's company.
mm. Report of Experts. All documents and tangible things including all tangible reports, physical models, compilation of data and other material prepared by, for, or provided to an expert in anticipation of the expert's trial and/or deposition testimony, whether it was prepared in anticipation of litigation or for trial when it forms a basis in whole or part of the opinion of the expert who is to be called as a witness.
nn. Health Professional's Documentation. All documents, reports and tangible items which state the findings, conclusions, or diagnosis made by any physician, psychologist, psychiatrist, counselor, or other health professional whom you have seen for the past _____ years.
oo. Attorney Fees. Copies of all contracts between you and your attorney in connection with the subject matter of this cause, together with copies of all statements received by you from you attorneys in connection with this cause and all documents and financial records reflecting all payments by you to said attorneys in connection with the subject matter of this cause of actions, and through time of trial.
pp. Other Lawsuits. Any and all pleadings and all other documents in your possession or under your control which relate to any and all lawsuits to which you are a party or have been a party within the last _____ years (even though same might now be settled.)
qq. Medical Records. All medical records, prescription records, pharmacy records, hospital bills, or other billings reflecting medical care rendered on your behalf.
rr. Tangible Documents. All photo, tape recordings, written documents, or other demonstrative evidence that you intend to use at trial or you contend supports any request for damages made by you in this cause of action.
Additionally, the new rules of discovery now contain special provisions for the request of electronic or magnetic data, and for testing and sampling. The comments to Rule 196 (requests for production & inspection) state:
"A party requesting sampling or testing must de-scribe the procedure with sufficient specificity to enable the responding party to make appropriate objections. A party requesting production of magnetic or electronic data must specifically request the data, specify the form in which it wants the data produced, and specify any extraordinary steps for retrieval and translation. Unless ordered otherwise, the responding party need only produce the data reasonably available in the ordinary course of business in reasonably usable form."
3. Subpoena Duces Tecum
a. Mandatory Requirements
One of the available options for obtaining production of documents such as those listed above is the "discovery subpoena" (as opposed to the "witness subpoena"). The subpoena process, as now allowed by the new rules of discovery, is a perfect illustration of the Texas Supreme Court's attempt to streamline the discovery process. The new rules now combine the former rules governing subpoenas for trial with subpoenas for document production. Although the option of having your local district clerk issue the subpoena is still available, you now have the convenient ability to prepare and issue your own subpoena (saving time in not having to go to the courthouse and saving money in not having to pay the administrative fee), and you may now serve a party by and through the party's attorney of record (saving money in process service fees). If you elect to prepare your own subpoena, you must follow the form mandated by TRCP 176.1 for all subpoenas that states the following items must be included:
(1) issued in the name of the "State of Texas";
(2) style and cause number;
(3) date of issue;
(4) identity of person to whom subpoena is directed;
(5) time, place, and nature of action required by person to whom subpoena is directed [Note: TRCP 176.2 states that the subpoena must command the person to (a) attend and give testimony at a deposition, hearing, or trial; and/or (b) produce and permit inspection and copying of designated documents or tangible things in the possession, custody, or control of that person];
(6) identity of the party having the subpoena issued, and the party's attorney;
(7) the text of TRCP 176.8(a), which states as follows: "Failure by any person without adequate excuse to obey a subpoena served upon that person may be deemed a contempt of the court from which the subpoena is issued or a district court in the county in which the subpoena is served, and may be punished by fine or confinement, or both."; and
(8) signature of issuing party or attorney.
b. Tender and Return of Service
Although tender and proof of service are not on the foregoing mandatory list from TRCP 176.1, Rule 176.5(b) goes on to state that proof of service must be made as well (sounds mandatory to me), and TRCP 176.8(b) requires all lawful fees be paid and legal tender made to the witness before the subpoena can be enforced. Proof of service must contain either the witness's written acknowledgment of receipt and acceptance of the subpoena or a statement by the person serving the subpoena of the date, time, manner of service, and name of person served, also referred to as a "Return of Service." The easiest way to frame this language is to use the form provided by your district clerk. The correct tender amount is currently $10.00, which can now be made by check (staple it to the subpoena). If you fail to include the tender and/or if you don't have a completed return of service or acknowledgment by the person served (as described above) on file, and the party served does not comply as required, then you cannot enforce your subpoena.
c. Make it Look Official
A final suggestion as far as the basic form of your "home made" subpoenas, if you have the software to do it, is to insert clip art on the top of the subpoena, such as a star, or the state of Texas, or scales of justice. Prepare the subpoena so that it can be folded three-ways, with the tender enclosed, and print the style of the case on the back middle portion of the subpoena so that it appears on the outside when the subpoena is folded. All of these smaller efforts make your subpoena look more official to the untrained eye, hopefully to be taken seriously by its recipient.
d. Appearance Not Required - Discovery Subpoenas
As mentioned above, there is a distinction between "discovery subpoenas" issued for document production and "trial subpoenas" issued for personal appearance. Besides the language within the duces tecum setting forth the documents requested, there are a few other very important things to remember when serving a discovery subpoena. First, the person being commanded to produce the documents no longer has to personally appear at the time and place of production unless that person is also being subpoenaed to testify. A subpoena of this type (not requiring personal appearance for deposition) to a non-party must provide the following information:
(1) The name of the person from whom production is sought;
(2) A reasonable time and place for production; and
(3) The items to be produced.
When a discovery subpoena is served on a nonparty to produce documents but does not require the nonparty to appear for a deposition, the subpoena cannot be served with the notice of production, and must be served at least ten days after service of the notice. Thus a party who wants to secure documents from a nonparty without a deposition must serve the notice and subpoena separately, serving the nonparty with the request for production, and then, after ten days have expired, serving the subpoena on the non-party.
e. Automatic Authentication
Concerns about authentication of the documents come up in all types of requests for production, and although I am addressing them in the subpoena section, this portion is meant to apply to all document requests. The authentication problem should alleviated by the self-authentication provided for in TRCP 176.6(d) and 193.7, which provide that the production of documents by a party or non-party in response to a discovery request authenticate those documents for use against said party or non-party, subject to objection. The possibility of objection and the other many instances where documents produced by a non-party are used against a party, bring us back to the safest bet an Affidavit for Business Records. Include the affidavit as an exhibit to your subpoena, and send a letter along with the subpoena telling the party served that if they authenticate the documents by completing and signing the affidavit, it should not be necessary for them to appear in Court. People will do just about anything if they think they won't have to testify, and often will gladly sign the affidavit rather than have to appear, thus alleviating any potential authentication problems. Of course, you will need to make sure the affidavit has been on file for at least fourteen days prior to the hearing or trial at which you intend to present the records.
f. All Production Rules Apply To Subpoenas
Although the new rules of discovery have opened the door to allowing subpoenas to have the potential to be more productive than they had in the past, using a subpoena to circumvent other rules of discovery is prohibited. Therefore, all of the rules of discovery, particularly as associated with depositions and the production of documents apply to subpoenas as well. Because the new rules now specifically state that TRCP 199.2(b)(5) (regarding requests for production of documents in depositions) incorporates TRCP 196.2(a) (allowing a 30-day time to respond to request for production), the person being served with a subpoena duces tecum will be allowed 30 days to respond. Additionally, the new rules impose a duty on the person requesting the subpoena to avoid imposing undue burden and expense on the person served, including a new provision allowing a person affected by the subpoena to seek protection.
VII. SPECIAL RULES FOR OBTAINING FINANCIAL RECORDS FROM FINANCIAL INSTITUTIONS
To compel discovery from any financial institution in this state, it is imperative that you be familiar with §59.006 of the Texas Finance Code. It provides in pertinent part:
Ҥ59.006. Discovery of Customer Records
(a) This section provides the exclusive method for compelled discovery of a record of a financial institution relating to one or more customers…
(b) A financial institution shall produce a record in response to a record request only if:
(1) it is served with the record request not later than the 24th day before the date that compliance with the record request is required;
(2) before the financial institution complies with the record request the requesting party pays the financial institution’s reasonable costs of complying with the record request, including costs of reproduction, postage, research, delivery, and attorney’s fees, or posts a cost bond in an amount estimated by the financial institution to cover those costs; and
(3) if the customer is not a party to the proceeding in which the request was issued, the requesting party complies with Subsections (c) and (d) and;
(A) the financial institution receives the customer’s written consent to release the record after a request under Subsection (c)(3); or
(B) the tribunal takes further action based on action initiated by the requesting party under Subsection (d).
(c) If the affected customer is not a party to the proceeding in which the record request was issued, in addition to serving the financial institution with a record request, the requesting party shall:
(1) give notice stating the rights of the customer under Subsection (e) and a copy of the request to each affected customer in the manner and within the time provided by Rule 21a, Texas Rules of Civil Procedure;
(2) file a certificate of service indicating that the customer has been mailed or served with the notice and a copy of the record request as required by this subsection with the tribunal and the financial institution; and
(3) request the customer’s written consent authorizing the financial institution to comply with the request.
(d) If the customer that is not a party to the proceeding does not execute the written consent requested under Subsection (c)(3) on or before the date that compliance with the request is required, the requesting party may by written motion seek an in camera inspection of the requested record as its sole means of obtaining access to the requested record. In response to a motion for in camera inspection, the tribunal may inspect the requested record to determine its relevance to the matter before the tribunal. The tribunal may order redaction of portions of the records that the tribunal determines should not be produced and shall enter a protective order preventing the record that it orders produced from being:
(1) disclosed to a person who is not a party to the proceeding before the tribunal; and
(2) used by a person for any purpose other than resolving the dispute before the tribunal.
(e) A customer that is a party to the proceeding bears the burden of preventing or limiting the financial institution’s compliance with a record request subject to this section by seeking an appropriate remedy, including filing a motion to quash the record request or a motion for a protective order. Any motion filed shall be served on the financial institution and the requesting party before the date that compliance with the request is required. A financial institution is not liable to its customer or another person for disclosure of a record in compliance with the section.
(f) A financial institution may not be required to produce a record under this section before the later of:
(1) the 24th day after the date of receipt of the record request as provided by Subsection (b)(1);
(2) the 15th day after the date of receipt of a customer consent to disclose a record as provided by Subsection (b)(3); or
(3) the 15th day after the date a court orders production of a record after an in camera inspection of a requested record as provided by Subsection (d).
(g) An order to quash or for protection or other remedy entered or denied by the tribunal under Subsection (d) or (e) is not a final order and an interlocutory appeal may not be taken.”
Therefore, in order to obtain a customer record from a state or national banking institution, credit union, brokerage house or other financial institution the following requirements must be met:
(1) service at least 24 days in advance of required production
(2) must be accompanied by anticipated listed costs, or a “bond” to secure same
(3) if the customer is not a party to the lawsuit, must: obtain written consent by customer, or make notice to customer notifying customer of his/her right to file a motion to quash or similar action, and may file a motion to have access after in camera inspection by the court as to relevance
(4) if customer is party, customer may challenge by motion to quash or similar action, but party bears burden of preventing or limiting access
(5) financial institution may not be required to produce until the later of:
a) 24 days after service
b) 5 days after consent of customer is received, or
c) 15 days after court orders in camera inspection.
VIII. COMMONLY NEEDED PREDICATES FOR INTRODUCTION OF DOCUMENTS
The following is a list of predicates, and the underlying statute, rule, or case law for many evidentiary documents used to bolster inventories. Most are taken from the Family Law Foundation Predicates Manual.
A. Accounting Records
Foundation for admission of accounting record print-outs kept in files:
(1) Identity of record custodian;
(2) Familiarity of record custodian with machine accounting procedures;
(3) Description of machine accounting procedures;
(4) Precautions taken to prevent errors;
(5) Correction of errors discovered;
(6) Explanation of the reason magnetic tapes are erased;
(7) Establishment of usual and customary business methods; and
(8) Explanation of reason for elimination of unnecessary machine operations.
Foundation for admission of accounting record print-outs made specially for trial:
(1) Identification of exhibit;
(2) Description of mechanical process used to convert machine-language records into readable print-outs;
(3) Establishing usual and customary office procedure to prepare readable print-outs of machine-language records whenever necessary; and
(4) Showing identify between print-outs and machine-language records they represent.
T.R.E. 803 and 1006
B. Attorney’s Fees
(1) It was necessary for the party to retain an attorney;
(2) The witness is an attorney whose experience justifies his or her hourly rate;
(3) The fees are reasonable and customary;
(4) The fees are necessary; and
(5) The client is obligated to pay the fees charged.
CPRC §38.001
C. Audit
(1) The auditor was appointed by the Court pursuant to TRCP 172 to conduct an investigation of accounts or examination of vouchers;
(2) The report states that the auditor has carefully examined the state of the account between the parties, and that his report contains a true statement thereof, so far as the same has come within his knowledge; and
(3) The report is verified by the auditor.
T.R.E. 706
D. Automobile Record
(1) A record of a document purporting to establish or affect an interest in property;
(2) As proof of the content of the original recorded document and its execution and delivery by each person by whom it purports to have been executed;
(3) The record is a record of public office; and
(4) An applicable statute authorizes the recording of documents of that kind in that office.
T.R.E. 803(14)
E. Bank Record
(1) The record must have been made at or near the time of the event or from information transmitted by a person with knowledge;
(2) Kept in the course of regularly conducted business activity; and
(3) All shown by the testimony of the custodian or other qualified witness, or by affidavit that complies with T.R.E. 902(10), unless the source of information or method or circumstances of preparation indicated lack of trustworthiness.
T.R.E. 803(6)
F. Business Record
(1) Witness is custodian or other person with knowledge of the business’ filing system;
(2) The record was made in the ordinary course of business;
(3) The record was made at or near the time of the event in question;
(4) In the regular course of business, a person with knowledge made the record or was furnished with the information for the record; and
(5) It was the regular practice of that business activity to make such a record.
T.R.E. 803(6)
G. Charge Account Record
(1) The business record as prepared by a person with knowledge;
(2) The record was prepared at or near the time of the act or event which is the subject of the record;
(3) The record was kept in the course of a regularly conducted business activity; and
(4) It was the regular practice of that business to prepare such a record.
T.R.E. 803
H. Check
(1) The document purports to be an original or a copy of an instrument which qualifies as commercial paper as provided by general commercial law, or a signature thereon, or a document relating thereto; and
(2) The instrument, signature(s) thereon, or documents(s) relating thereto are presumptively authentic commercial paper.
T.R.E. 902
I. Computer Printout
The foundation for admitting a computer printout as a business record should establish, through the testimony of the custodian of the computer-kept records or other person familiar with the manner in which the records were processed and maintained, the following:
(1) The reliability of the data processing equipment used to keep the records and produce the printout;
(2) The manner in which the basic data was initially entered into the system;
(3) That the data were so entered in the regular course of business;
(4) That the data were entered within a reasonable time after the events recorded by persons having personal knowledge of the events;
(5) The measures taken to insure the accuracy of the data entered;
(6) The method of storing the data and the safety precautions taken to prevent loss of the data while in storage;
(7) The reliability of the computer programs and formulas used to process the data;
(8) The measures taken to verify the proper operation and accuracy of these programs and formulas; and
(9) The time and mode of preparation of the printouts.
T.R.E. 1001
J. Creditor Record
(1) The business record was prepared by a person with knowledge;
(2) The record was prepared at or near the time of the act or event which is the subject of the record;
(3) The record was kept in the course of a regularly conducted business activity; and
(4) It was the regular practice of that business to prepare such a record.
T.R.E. 803
K. Data Stored Electronically
(1) The witness is a competent computer operator;
(2) The computer used is accepted as standard and efficient equipment;
(3) Appropriate procedures were followed regarding data entry and checks for accuracy;
(4) The computer was operated and programmed property; and
(5) The record has the significance which the witness claims it has.
T.R.E. 1001
L. Deed
(1) The document purports to be a copy of an official record;
(2) A certificate is attached to the copy;
(3) The certificate states that the signatory is a public custodian of official records;
(4) The certificate states that the document is a true and accurate copy of an original, official record; and
(5) The certification bears a presumptively authentic signature and/or seal.
T.R.E. 902
M. Employment Contract
(1) The business record was prepared by a person with knowledge;
(2) The record was prepared at or near the time of the act or event which is the subject of the record;
(3) The record was kept in the course of a regularly conducted business activity; and
(4) It was the regular practice of that business to prepare such a record.
T.R.E. 803
N. Financial Information Statement
(1) The financial information statement is a summary of other records;
(2) The other records are voluminous writings, recordings, or photographs that are admissible;
(3) The other records cannot be conveniently examined in court; and
(4) The other records were made available to the other party for inspection and copying.
T.R.E. 1006
O. Goodwill of a Professional Business
(1) Qualify expert;
(2) Authenticate and have witness explain data relied on;
(3) Establish whether the practice/business has any personal and/or professional goodwill;
(4) If so, explain the difference and that any consideration of the value of personal goodwill has been excluded from the calculation; and
(5) Have witness state opinion as to value.
T.R.E. 702
P. Income Tax Record
(1) Record was made and kept in the regularly conducted business activity;
(2) It was in the regular practice of the business activity to make the record;
(3) The record was made at or near the time of the event that it records; and
(4) The record was made by, or from information transmitted by, a person with knowledge acting in the regular course of business.
T.R.E. 803
Q. Insurance Record
(1) Record was made and kept in the regularly conducted business activity;
(2) It was in the regularly practice of the business activity to make the record;
(3) The record was made at or near the time of the event that it records; and
(4) The record was made by, or from information transmitted by, a person with knowledge acting in the regular course of business.
T.R.E. 803
R. Inventory
(1) Have court take judicial notice of inventory in its file
or
(1) Have witness identify their inventory which as been marked as an exhibit;
(2) That the items of property and related values reflect their opinion as to the nature and value of the items reflected;
(3) That if asked to testify as to each item and its value they would testify as reflected on the exhibit;
(4) Offer the inventory as a shorthand rendition.
T.R.E. 901
S. Market Report
(1) Establish that the report, list, tabulation, etc. is generally used and relied upon by the public or by persons of particular occupations (e.g. N.A.D.A. stock quotes in newspaper, business periodicals, etc.)
(2) Offer report, list, tabulation (or copy).
T.R.E. 803
T. Marital Agreement
1. By Proponent
(a) Written agreement;
(b) Signed by both parties; and
(c) Mark and offer marital agreement.
2. By Opponent (contesting Marital Agreement)
(a) Contesting party did not sign marital agreement voluntarily; OR
(b) The agreement was unconscionable when it was signed, AND before signing, that party:
(1) Was not provided a fair and reasonable disclosure of the property or financial obligations of the other party;
(2) Did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; AND
(3) Did not have, or reasonably could not have had adequate knowledge of the property or financial obligations of the other party.
Tex. Fam. Code §4.006 and 4.105
U. Mediation Agreement
(1) Written evidence of referral to mediation by agreement of parties or order of court;
(2) Mediated settlement agreement contained boldface statement reflecting that mediated settlement is not subject to revocation;
(3) The mediated settlement agreement is signed by both parties, and their counsel, if any, who is present at the time the agreement is signed; and
(4) Mark and offer the mediated settlement agreement.
Tex. Fam. Code §6.602 and 153.0071
V. Medical Bill
(1) Record was made and kept in the regularly conducted business activity;
(2) It was in the regularly practice of the business activity to make the record;
(3) The record was made at or near the time of the event that it records; and
(4) The record was made by, or from information transmitted by, a person with knowledge acting in the regular course of business.
T.R.E. 803
W. Owner’s Opinion of Value
(1) Establish ownership interest in subject property;
(2) Owner is familiar with and has personal knowledge of property; and
(3) Owner’s opinion of the fair market value of property is ________.
X. Partnership Records
(1) Record was made and kept in the regularly conducted business activity;
(2) It was in the regularly practice of the business activity to make the record;
(3) The record was made at or near the time of the event that it records; and
(4) The record was made by, or from information transmitted by, a person with knowledge acting in the regular course of business.
Y. Paycheck Stubs
(1) Record was made and kept in the regularly conducted business activity;
(2) It was in the regularly practice of the business activity to make the record;
(3) The record was made at or near the time of the event that it records; and
(4) The record was made by, or from information transmitted by, a person with knowledge acting in the regular course of business.
T.R.E. 803
Z. Payroll Record
(1) Record was made and kept in the regularly conducted business activity;
(2) It was in the regularly practice of the business activity to make the record;
(3) The record was made at or near the time of the event that it records; and
(4) The record was made by, or from information transmitted by, a person with knowledge acting in the regular course of business.
T.R.E. 803
AA. Prenuptial Agreement
1. By Proponent
a. Written agreement;
b. Signed by both parties; and
c. Mark and offer marital agreement.
2. By Opponent (contesting Premarital Agreement)
a. Contesting party did not sign premarital agreement voluntarily; OR,
b. The agreement was unconscionable when it was signed, AND before signing, that party:
(1) Was not provided a fair and reasonable disclosure of the property or financial obligations of the other party;
(2) Did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; and
(3) Did not have, or reasonably could not have had adequate knowledge of the property or financial obligations of the other party.
Tex. Fam. Code §4.105
BB. Promissory Note
(1) The facts and circumstances attendant to the making of the statement gave it legal significance or effect, regardless of the truth or falsity of the matter asserted;
(2) The document purports to be an original or copy of an instrument which qualifies as commercial paper as provided by general commercial law, or a signature thereon, or a document relating thereto; and
(3) The instrument, signature(s) thereon, or document(s) relating thereto are presumptively authentic commercial paper.
Bobbie Brooks, Inc. v. Goldstein, 567 S.W.2d 902 (Tex.Civ.App.—Eastland 1978, writ ref’d n.r.e.)
CC. Property Tax Record
(1) The document purports to be a copy of an official record;
(2) A certificate is attached to the copy;
(3) The certificate states that the signatory is a public custodian of official records;
(4) The certificate states that the document is a true and accurate copy of an original, official record; and
(5) The certificate bears a presumptively authentic signature and/or seal.
T.R.E. 902
DD. Real Estate Record
Predicate to admission of the document:
(1) The record establishes or affects an interest in property;
(2) The record proves the content of the originally recorded document, its execution and its delivery to each person by whom it purports to have been executed;
(3) The record is of a public office; and
(4) An applicable statute exists authorizing the recording of the document.
Predicate to admission of statements in document:
(1) The statement must be relevant to the purpose of the document; and
(2) Dealings with the property cannot be inconsistent with the statement or the document.
T.R.E. 803(14)
EE. Stocks and Bond Records
(1) The facts and circumstances attendant to the making of the statement gave it legal significance or effect, regardless of the truth or falsity of the matter asserted.
Or
(1) Identify the records; and
(2) If duplicates are used, establish that the duplicates are true and correct copies of the originals (“Duplicate” is defined in T.R.E. 1001(4). Duplicates are admissible to the same extent as originals except as specified in T.R.E. 1003).
(3) Establish that the record was:
a. Made at or near the time that the information of the record came to the attention of the business;
b. Made by, or from information transmitted by, a person with knowledge;
c. Made in the regular practice of the business; and
d. Kept in the regular course of the business.
Or
(1) The record is a published compilation; and
(2) The record is generally used and relied upon by the public or by persons in a particular profession.
Bobbie Brooks, Inc. v. Goldstein, 567 S.W.2d 902 (Tex.Civ.App.—Eastland 1978, writ ref’d n.r.e.
FF. Summary
(1) Witness prepared the summary or attorney (or staff) prepared with witnesses’ assistance;
(2) Witness has reviewed the records from which the summary was compiled;
(3) Witness explains the document(s) from which the summary was prepared;
(4) Witness is qualified to understand the nature of the underlying documents;
(5) Witness testifies that the documents relied upon to compile summary was voluminous and cannot be conveniently examined in court;
(6) The records relied upon to compile the summary have been previously made available for examination or copying, or both, by other parties at a reasonable time and place to opposing counse;
(7) The underlying records would be admissible; and
(8) The summary reflected is accurate.
T.R.E. 1006
GG. Tax Record
Sears, Roebuck & Co. v. Ramirez, 824 S.W.2d 558, 559 (Tex. 1992)
Hall v. Lawlis, 907 S.W.2d 493, 494 (Tex. 1995)
Chamberlin v. Cherry, 818 S.W.2d 201, 206 (Tex.App.—Amarillo 1991)
HH. Testimony by Custodian of Record
T.R.E. 803(6)
IX.TRIAL AIDES
Always, always provide the court with a comparison of the values and items, including debts and claims (torts, etc.) that you would like the court to award you along with a blank form for him to make notes on as an aid to the court’s determination.
PART II – MENTAL HEALTH RECORDS
I. INTRODUCTION
This part of the paper will attempt to inform the family law practitioner of the methods available for obtaining mental health records of parties and nonparties and the privileges you will encounter in response. There have been significant statutory changes in each area.
II. DISCOVERING MENTAL HEALTH RECORDS
A. The Mental Health Information Privilege
The general rule is that most mental health information is not discoverable. If you are contemplating using mental health information prior to filing a petition for divorce, modification or suit affecting parent-child relationship, you will look to the Texas Health & Safety Code Chapter 611 and once suit is filed the Texas Rules of Evidence 510 applies. Both rules basically state that a confidential communication between a patient and a professional for diagnosis, evaluation, or treatment of any mental or emotional condition is privileged and is not to be disclosed in civil cases. The privilege extends to records of the identity, diagnosis, evaluation, or treatment of the patient, created or maintained by the professional, and applies regardless of when the patient received the services of the professional. TEX.R.EVID 510(b)(2), (4); TEX.HEALTH & SAFETY C. § 611.002(c).
1. “Patient” means:
a. A person who consults or is interviewed by a professional for purposes of diagnosis, evaluation, or treatment of any mental or emotional condition or disorder, including alcoholism or drug addition.
b. A person who is being treated voluntarily (or being examined for admission to voluntary treatment) for drug abuse.
TEX.R.EVID. 510(a)(2); TEX.HEALTH & SAFETY C. § 611.001
2. “Professional” is any person:
a. Authorized to practice medicine in any state or nation.
b. Licensed or certified by Texas in the diagnosis, evaluation, or treatment of any mental or emotional disorder.
c. Involved in the treatment or examination of drug abusers.
d. Reasonably believed by the patient to be included in any of the preceding categories.
TEX.R.EVID. 510(a)(1); TEX.HEALTH & SAFETY C. § 611.001
3. “Confidential Communication” is one that is not intended to be disclosed to a third person other than:
a. Persons who are present to further the patient’s interest in the diagnosis, examination, or treatment;
b. Persons reasonably necessary for the transmission of the communication; or
c. Persons who are participating in the diagnosis, examination, evaluation, or treatment under the professional’s direction, including a patient’s family member.
TEX.R.EVID. 510(a)(4)
4. Persons entitled to claim the privilege include the patient or a representative acting on the patient’s behalf limited to the following:
a. Any person bearing the written consent of the patient.
b. A parent if the patient is a minor.
c. A guardian if the patient has been adjudicated incompetent to manage his or her personal affairs.
d. The patient’s personal representative if the patient is deceased.
e. The professional may claim the privilege only on behalf of the patient and his or her authority to do so is presumed in the absence of contrary evidence.
TEX.R.EVID. 510(a)(3); (c)(1), (2); TEX.HEALTH & SAFETY C. § 611.003(a), (b)
B. Exceptions to the Privilege
The exceptions to the mental health privilege are contained in TEX.R.EVID 510(d) and TEX.HEALTH & SAFETY C. § 611.006. There are six exceptions to the privilege related to their use in civil judicial or administrative proceedings, while the HEALTH & SAFETY CODE contains several other exceptions which exist in the absence of such proceedings. These exceptions generally deal with required reports and governmental investigations or facilitate the diagnosis and treatment of the patient. This paper will review the six exceptions common to the two statutes, which apply in civil judicial and administrative proceedings.
1. Proceedings Against Professional
When judicial or administrative proceedings are brought by the patient against the professional, no privilege exists. The typical example of this exception is a malpractice action. TEX.R.EVID. 510(d)(1); TEX.HEALTH & SAFETY C. § 611.006(a)(1)
Moreover, the privilege does not exist in any proceeding to revoke the professional’s license if the patient is a complaining witness and the disclosure is relevant to the claim or defense of the professional. TEX.R.EVID. 510(d)(1); TEX.HEALTH & SAFETY C. § 611.006(a)(2)
2. Written Waiver
The mental health information privilege can be waived by a written document, signed by the patient or a representative of the patient acting on the patient’s behalf. TEX.R.EVID. 510(d)(2); TEX.HEALTH & SAFETY C. 611.006(a)(3). The written instrument should state specifically the purpose for which the privilege is being waived and expressly restrict any further disclosure of information beyond that authorized. Any person who obtains information under a waiver is not allowed to disclose the information except to the extent consistent with the purpose for which the authorization was initially granted. TEX.R.EVID. 510(d)(3)
Generally, the patient or the patient’s legally authorized representative may revoke a waiver at any time. The revocation must be in writing, dated, and signed by the patient or the patient’s legally authorized representative. TEX.HEALTH & SAFETY C. § 611.007(a). However, a waiver required for purposes of making payment to the professional for mental health care services provided to the patient cannot be revoked. TEX.HEALTH & SAFETY C. § 611.007(b)
3. Fee Collections
The mental health information privilege does not apply when the proceeding is to substantiate and collect a claim for mental or emotional health services rendered to the patient. TEX.R.EVID 510(3); TEX.HEALTH & SAFETY C. § 611.006(a)(4)
4. Court-Ordered Examinations – Communications Not Privileged
Texas Rules of Civil Procedure 204.1 provides upon a parties’ motion for good cause, a court may order mental examinations if the mental or physical condition of a party or a person under the party’s control is in controversy. In all cases arising under Titles II or IV of the Texas Family Code, the court may on its own initiative or on motion of a party appoint one or more psychologists or psychiatrists to make any and all appropriate mental examinations of the children subject of a suit or of any other party. TEX.R.CIV.P. 204.4
If the court orders a person to submit to a mental examination, there is no privilege for any communication made by the patient to the professional in the course of the examination if the communication relates to the patient’s mental or emotional condition or disorder at issue in the proceeding. However, for the exception to apply, the patient must have been informed that the communications would not be privileged. Moreover, the judge should include in the order for the examination appropriate safeguards against unauthorized disclosure. TEX.R.EVID. 510(d)(4); TEX.HEALTH & SAFETY C. 611.006(a)(5), (b)
If the court ordering an examination and the professional conducting the examination fail to advise the patient that communications to the professional will not be privileged, the exception is not met and the privilege will apply to protect the communication.
Subia v. Texas Dept. of Human Services 750 S.W.2d 827 (Tex.App.--El Paso 1988, no writ) concerned a termination of parental rights proceeding in which the El Paso Court of Appeals held that the trial court’s admission of testimony by a psychologist, who had been ordered to examine the mother, violated the Rule 510 evidentiary privilege, where neither the trial court nor the psychologist had informed the mother that any communications made in the course of the examination would not be privileged. The appellate court decided that the requirements of Rule 510(d)(4) were not satisfied because the testimony was based on a court-ordered examination in circumstances where the parent was not “previously informed that communications would not be privileged…” Id at 830.
Similarly, the warning as to the non-confidential nature of the communication seems to be required, even if the proceeding is on for the patient’s involuntary commitment for observation and treatment. In Interest of R.B. 741 S.W.2d 525 (Tex.App.—Tyler 1987, no writ) involved the involved the testimony of two medical witnesses which the court held excluded under the Rule 510(d)(4) evidentiary privilege since the patient was not informed by the court or the physicians that the communications would not be privileged despite the fact that Rule 509, the Physician-Patient Privilege, specifically provides an exception in paragraph (6) for an involuntary civil commitment proceeding for court-ordered treatment or probable cause hearing under Tex.Health & Safety Code ch. 462. The court in resolving the apparent conflict between Rules 509 and 510 in the patient’s favor failed to refer to TEX.HEALTH & SAFETY C. § 611.006(a)(10) which provides a further exception to the privilege in an involuntary commitment proceeding for court-ordered treatment or for a probable cause hearing under Tex.Health & Safety Code Chapters 462, 574, or 593.
5. Condition at Issue in Litigation
a. Pre-March 1, 1998 Amendments
Prior to the legislative amendments effective March 1, 1998, TEX.R.EVID. 510(d)(6) and TEX.HEALTH & SAFETY C. § 611.006(a)(6) each provided an exception to the privilege for judicial proceedings affecting the parent-child relationship. In the notes and comments to Rule 510 it is stated that former subparagraph (d)(6) regarding disclosures in a suit affecting the parent-child relationship, is omitted, not because there should be no exception to the privilege in suits affecting the parent-child relationship, but because the exception in such suits is properly considered under subparagraph (d)(5), as construed in R.K. v. Ramirez, 887 S.W.2d 836 (Tex. 1994). The comment further states that in determining the proper application of an exception in such suits, the trial court must ensure that the precise need for the information is not outweighed by legitimate privacy interests protected by the privilege. Subparagraph (d) does not except from the privilege information relating to a nonparty patient who is or may be a consulting or testifying expert in the suit.
TEX.HEALTH & SAFETY C. § 611.006(a)(6) has been repealed by the following language: <Paragraph 4 of the February 25, 1998 Order of the Texas Supreme Court and par. 4 of the February 25, 1998 Order of the Court of Criminal Appeals of Texas provide in part that subsec. (a)(6) of this section is deemed to be repealed insofar as it conflicts with Vernon’s Ann.Texas Rules Evid., Rule 510>
b. The Effect of the Amendments
The amendments will most likely have a restricting effect on the exceptions to the privilege. Prior to 1998, most practitioners assumed that mental health records of parties and nonparties alike would be discoverable and admissible as evidence in suits affecting the parent-child relationship as they were deemed to be statutorily relevant. What prompted the legislature to revise these statutes? Was it the case of Cheatham v. Rogers, 824 S.W.2d 231 (Tex.App.—Tyler 1992) (orig. proceeding)? This case was the first to expansively apply the former Rule 510(d)(6) exception to parties and nonparties alike.
In Cheatham, the father filed a motion to modify, seeking to remove the court-appointed counselor for his children. The mother then filed a counter-motion to restrict the father’s access to the children. In the course of the proceedings, the counselor provided the trial court with a written report recommending that the father’s access be restricted. As a result, the father sought discovery of the counselor’s personal mental health records (the best defense is a good offense, I guess).
The Tyler Court of Appeals followed the “plain” language of the exception and held that the exception applied equally to non-parties as well as to parties. Cheatham, 824 S.W.2d at 234. Further, the court concluded that the counselor’s mental health records were relevant to both the father’s motion to modify and to his defenses against the mother’s attempt to restrict his access to his children. If the information sought through discovery showed that the counselor was “impaired mentally or emotionally,” the court reasoned, then the counselor would be effectively impeached by such evidence. Id. In conclusion, the Tyler Court of Appeals noted that, by its promulgation of the Rule 510(d)(6) exception, the state “made a necessary intrusion upon the privacy rights of persons who become expert witnesses in judicial proceedings involving the status, welfare, and interest of children” and held that the vital and compelling state interest far outweighed the counselor’s right to privacy. Id at 236.
Relying on Cheatham as “persuasive authority,” the Houston First Court of Appeals held that Tex.R.Evid. 509(d)(6) exception for medical records (worded identically to the 510(d)(6) exception for mental health records) applies to both parties and non-parties. Smith v. Gayle, 834 S.W.2d 105, 107 (Tex.App.—Houston [1st. Dist.] 1992) (orig. proceeding) Smith involved the discoverability of the medical records of a close friend to one of the parties in SAPCR. The appellate court noted that the friend was a “crucial figure” in the custody case, but upon review of the documents at issue, determined that the trial court had not abused its discretion in finding that the records were not relevant to any issue in the underlying proceeding. Id. Interestingly, Rule 509(d)(6) has now too been eliminated from the statute with the identical comments to Rule 510.
While it may remain unclear whether the mental health or medical records of non-parties will be deemed relevant, thus discoverable, in future cases, it does appear clear by the comments to the exceptions to the privilege in Rules 509(e) and 510(d) that neither section excepts from the privilege information relating to a nonparty patient who is or may be a consulting or testifying expert in the suit.
c. The Current Rule Applicable to SAPCRS
There is no privilege to protect communications or records of a mental health professional in civil or administrative proceedings when the matter sought to be disclosed is relevant to an issue of a patient’s physical, mental, or emotional condition relied on by any party as a part of the party’s claim or defense. TEX.R.EVID. 510(d)(5) As pointed out in subparagraph (a.) above, the comments to Rule 510 states that the this exception to the privilege properly considers suits affecting parent-child relationships as construed in R.K. v. Ramirez, 887 S.W.2d 836 (Tex. 1994). This exception has been referred to as the “patient-litigant” exception.
R.K. was a mandamus action arising out of a medical malpractice case in which it was claimed that the doctor’s medical and mental condition caused or contributed to his alleged malpractice, and that the hospital and the clinic knew or should have known of the condition, and because of that condition should have supervised him better or not selected him at all. Id at 843-844. Specifically, the plaintiffs alleged that the doctor had serious mental and psychiatric problems, including severe depression, a history of and continuing problems of drug abuse which affected the doctor’s ability to function as a medical doctor, and a history of criminal behavior. Id at 846. The plaintiffs requested production of the doctor’s medical and mental health records.
After reviewing the pleadings, the Supreme Court agreed with the trial court that the information sought by the plaintiffs was relevant to the condition of the doctor that was at issue, and that a jury determination that the condition existed would be of legal significance to the negligence claims. Id at 843-844. Thus, the Supreme Court directed the trial court to review the doctor’s records in camera and then release only those records that met the test for the exceptions, redacting or exempting any information that did not meet the test. Id at 844.
R.K. dealt with the 1988 amendments to Rule 510 that included the addition of subparagraph (d)(5) which remain unchanged today. The Texas Supreme Court observed that the 1988 amendments to Rule 510 “represent a significant departure from the historical scope of the patient-litigant exception.” R.K., 887 S.W.2d at 842. The exception now terminates the confidentiality privilege whenever any party relies on the condition of a patient as part of that party’s claim or defense, even when the patient does not personally place the condition at issue or is not a party to the suit. Id. “As a general rule, a mental condition will be a ‘part’ of a claim or defense if the pleadings indicate that the jury must make a factual determination concerning the condition itself.” Id at 843. Also instructive is footnote 7: “Whether a condition is a part of a claim or defense should be determined on the face of the pleadings, without reference to the evidence that is allegedly privileged.” Id. Are we now in family law cases going to have to plead specifically in order to fall within the patient-litigant exception to the mental health privilege?
The exception to the privilege applies when the records are relevant to a patient’s condition that “relates in a significant way to a party’s claim or defense,” but not when the condition is tangential or “merely an evidentiary or intermediate issue of fact.” Id. Generally, the inquiry will be whether the factfinder must make a determination concerning the issue itself, i.e., whether it is an “ultimate issue for a claim or defense.” Id at 842-843. Courts should assure that the records sought are closely related in time and scope to the claims made before ruling on the discoverability and the admissibility of such documents. Id at 843. Thus, “access to medical and mental health information will be afforded the non-patient-party only if the patient’s condition itself is a fact that carries legal significance and only to the extent necessary to satisfy the discovery needs of the requesting party.” Id.
6. Neglect or Abuse of Institutionalized Person
There is an exception to the privilege in proceedings regarding the abuse or neglect, or cause of abuse or neglect, of a resident of an institution.
TEX.R.EVID. 510(d)(6); TEX.HEALTH & SAFETY C. § 611.006(a)(8)
III. CONCLUSION
The effect of the elimination of the specific exception to the mental health privilege for suits affecting the parent-child relationship has yet to litigated on appeal. It will most assuredly change the way we practice when such records may be relevant to a SAPCR. First, we should invariably claim the privilege when we receive a discovery request for non court-ordered mental health records. In the past what seemed like a frivolous gesture now has real significance. It will then be incumbent on the proponent to show its relevance and admissibility in accordance with the construction in R.K. v. Ramirez, supra. Second, if we are the proponents of such records we need to carefully draft our pleadings in accordance with the holding in R.K. in order to enhance its discovery and admissibility. Finally, we need to be aware that there will be even greater difficulty in discovering mental health records of nonparty patients even if they are “significant others” to the parents and children involved in SAPCRS.