PUBLISHED OPINION
Case No.: 96-0397
†Petition for
review filed
Complete Title
of Case:
DONALD F. KONLE and
ANTOINETTE KONLE,
Plaintiffs-Respondents,
WISCONSIN PHYSICIANS
SERVICE
INS. CORP., a
Wisconsin
insurance corporation,
Involuntary-Plaintiff,
v.
DONALD G. PAGE, and SOCIETY
INSURANCE, a mutual company,
f/k/a THRESHERMENS MUTUAL
INSURANCE COMPANY,
Defendants-Appellants,†
CHARLES M. HALL,
JEANNETTE HALL,
and GENERAL CASUALTY
COMPANY
OF WISCONSIN,
Defendants.
Submitted on Briefs: June 13, 1996
COURT COURT OF APPEALS OF WISCONSIN
Opinion Released: October 2, 1996
Opinion Filed: October
2, 1996
Source of APPEAL Appeal from an order
Full Name JUDGE COURT: Circuit
Lower Court. COUNTY: Waukesha
(If
"Special", JUDGE: ROBERT G. MAWDSLEY
so indicate)
JUDGES: Anderson, P.J., Brown and Nettesheim, JJ.
Concurred:
Dissented: Anderson, P.J.
Appellant
ATTORNEYSOn behalf of the defendants-appellants, the cause was
submitted on the briefs of Donald H. Carlson and Mary E. Nelson
of Crivello, Carlson, Mentkowski & Steeves, S.C. of Milwaukee.
Respondent
ATTORNEYSOn behalf of the plaintiffs-respondents, the cause was
submitted on the brief of Lynn R. Laufenberg of Cannon & Dunphy,
S.C. of Brookfield.
COURT OF
APPEALS DECISION DATED AND
RELEASED October
2, 1996 |
NOTICE |
A party may file with the Supreme Court a petition to review an
adverse decision by the Court of Appeals.
See § 808.10 and Rule
809.62, Stats. |
This opinion is subject to further editing. If published, the official version will appear in the bound
volume of the Official Reports. |
No. 96-0397
STATE OF WISCONSIN IN
COURT OF APPEALS
DONALD
F. KONLE and
ANTOINETTE
KONLE,
Plaintiffs-Respondents,
WISCONSIN PHYSICIANS SERVICE
INS. CORP., a Wisconsin
insurance corporation,
Involuntary-Plaintiff,
v.
DONALD
G. PAGE, and SOCIETY
INSURANCE,
a mutual company,
f/k/a
THRESHERMENS MUTUAL
INSURANCE
COMPANY,
Defendants-Appellants,
CHARLES M. HALL, JEANNETTE HALL,
and GENERAL CASUALTY COMPANY
OF WISCONSIN,
Defendants.
APPEAL
from an order of the circuit court for Waukesha County: ROBERT G. MAWDSLEY, Judge. Affirmed and cause remanded.
Before
Anderson, P.J., Brown and Nettesheim, JJ.
NETTESHEIM,
J. Donald G. Page appeals from a nonfinal
discovery order in Donald F. Konle's personal injury action against Page and
his insurer.[1] Page contends that the trial court erred by
refusing to order the production of Konle's complete income tax returns for the
years 1986 through 1994. Previously,
Konle had provided Page with Schedule C showing his business income. However, he refused to produce the balance
of the returns. Page argues that his
discovery request was appropriate because Konle claimed lost earnings and loss
of earning capacity.
After
conducting an in camera review of Konle's complete returns, the trial court
determined that, other than Schedule C, the remaining portions of the returns
were not relevant to Konle's damage claims.
We agree with the trial court's ruling, and we affirm the discovery
order.
BACKGROUND
On
November 23, 1992, Konle was a passenger in an automobile which was struck by a
vehicle driven by Page. As a result,
Konle, an attorney, filed this action against both Page and the operator of the
vehicle in which Konle was a passenger.[2] Konle sought damages for his injuries as
well as lost earnings and loss of earning capacity. In response to Page's request for information in support of
Konle's earning loss claims, Konle provided Page with copies of Schedule C from
his tax returns for the years 1986 through 1994, documenting his business
income. However, Konle refused Page's
further request for a complete copy of his tax returns for the same years.
Page
filed a motion to compel Konle to produce the complete returns. Konle resisted the motion, but offered to
submit the returns to the trial court for in camera review and a ruling. The trial court accepted this proposal. Following the in camera review, the court
issued a written decision denying Page's motion to compel. The court wrote in relevant part:
The
court has concluded the in camera review of Donald Konle’s tax returns
for the years 1986 through 1994. The
court finds that the income listed on the Schedule C’s, which defendants’
counsel have already been provided, represents the only earned income for the
plaintiff. The court finds there is no
income derived from the operation of any advertising agency. The court concludes that other sources of
income (interest, dividends, etc.) are not relevant to the claim of lost
earnings in this case. Other sources of
income for Mr. and Mrs. Konle do not make more or less probable the loss of
earnings Mr. Konle is seeking.
Page appeals.
DISCUSSION
Discovery of
Income Tax Returns
We
review a trial court's discovery ruling under the misuse of discretion standard
of review. Van Straten v.
Milwaukee Journal Newspaper-Publisher, 151 Wis.2d 905, 919, 447 N.W.2d
105, 111 (Ct. App. 1989), cert. denied, 496 U.S. 929 (1990). The burden is on Page to show that the trial
court misused its discretion and we will not reverse unless such misuse is
clearly shown. See id.
Page
rests his argument on § 804.01(2)(a), Stats.,
and related case law. The statute
provides in relevant part:
Parties
may obtain discovery regarding any matter, not privileged, which is relevant to
the subject matter involved in the pending action, ¼ including ¼ books, documents, or
other tangible things ¼. It is not
ground for objection that the information sought will be inadmissible at the
trial if the information sought appears reasonably calculated to lead to the
discovery of admissible evidence.
Id.
Page
also cites to case law holding that Wisconsin's discovery procedures are to be
liberally applied so that the issues for trial may be narrowed, settlement
promoted, and litigants fully informed about the facts which may come out at
trial. State ex rel. Dudek v.
Circuit Court, 34 Wis.2d 559, 576, 150 N.W.2d 387, 397 (1967). As such, discovery should be applied in a
manner which aids, not hinders, the working of the adversary system. Id.
Page
contends that the income tax returns are information which, under the statute,
“[appear] reasonably calculated to lead to the discovery of admissible
evidence.” See
§ 804.01(2)(a), Stats. Their production, Page contends, will
promote all of the factors which support a liberal application of the discovery
procedures. Page argues that the trial
court's “relevancy” analysis improperly applied an evidentiary test reserved
for trial during the discovery phase of these proceedings.
Given
the liberal rules which apply in a discovery setting, Page's argument appears
persuasive. However, Konle correctly
notes that because income tax returns contain confidential and sensitive
information which oftentimes will prove irrelevant to a plaintiff's claim, such
materials have received special consideration in the law of discovery. No reported Wisconsin case has considered
whether complete income tax returns are discoverable in a personal injury case
involving a claim for lost earnings or a loss of earning capacity. We therefore look to the law of other forums
for assistance.
Most
courts have held that only those portions of tax returns which deal with earned
income are relevant to, and discoverable in, a personal injury case.[3] Where a plaintiff asserts a loss of
earnings or a loss of earning capacity claim, the courts have concluded that
discovery of the plaintiff’s federal income tax returns is permitted only
insofar as those returns are relevant and material to the issues of the
case. See Hawkins v.
Potter, 194 N.E.2d 672, 673 (Ill. App. Ct. 1963); Schlatter v.
Eighth Judicial Dist. Court, 561 P.2d 1342, 1343-44 (Nev. 1977); Currier
v. Allied N.H. Gas Co., 137 A.2d 405, 407 (N.H. 1957); Mandell v.
Yellow Cab Co., 170 N.E.2d 296, 301 (Ohio Ct. Com. Pl. 1958); Matchen
v. McGahey, 455 P.2d 52, 56 (Okla. 1969); Novogroski v. O’Brien,
261 A.2d 283, 285 (R.I. 1970); Martin v. Jenkins, 381 S.W.2d 115,
119 (Tex. Civ. App. 1964); Maresca v. Marks, 362 S.W.2d 299, 301
(Tex. 1962). If the tax returns contain
information which is not relevant or material to the plaintiff’s claims, the
trial court has discretion to redact the irrelevant or immaterial
portions. See Currier,
137 A.2d at 407; Bauer v. Huber, 487 N.Y.S.2d 303, 304 (N.Y. Sup.
Ct. 1985); Matchen, 455 P.2d at 56; Martin, 381
S.W.2d at 119.
In
the Novogroski case, cited above, an attorney sought both past
and future loss of earnings in a personal injury action. Novogroski, 261 A.2d at
284. The Rhode Island Supreme Court
held that while the discovery rules should be liberally construed, those rules
do not warrant an order to produce tax returns absent a showing that the
information sought has some materiality or relevance to the issue to which the
motion is addressed. Id.
at 285. The court conceded that there
could be circumstances in which the complete returns would have materiality and
in those cases an order to produce the complete returns would be proper where
the moving party shows such materiality.
Id. However, where
the plaintiff’s claim was for loss of earnings, the court concluded that, to
the extent that the plaintiff’s returns were material to the defense of that
claim, all the information required by the defendant was contained in the W-2
statements and Schedule C of the plaintiff’s returns.[4] Id.
The
Novogroski court was primarily concerned with the private nature
of tax returns:
[I]t
is clearly evident that liberality of construction in the context of this case
which results in providing a movant with information which is nowise essential
to a just determination of the cause in which the motion is made is an unwarranted
invasion of the privacy of the party upon whom the motion to produce has
been served.
Id. (emphasis added).
The
Supreme Court of Texas best summarized the balance which must be struck between
protection of the plaintiff’s privacy and the defendant’s need for relevant
information to prepare a defense:
The
protection of privacy is of fundamental—indeed, of
constitutional—importance. Subjecting
federal income tax returns of our citizens to discovery is sustainable only
because the pursuit of justice between litigants outweighs protection of their privacy. But sacrifice of the latter should be kept
to the minimum, and this requires scrupulous limitation of discovery to
information furthering justice between the parties which, in turn, can only be
information of relevancy and materiality to the matters in controversy.
It is self-evident that the maximum protection of
privacy is unattainable if trial courts do not exercise their discretion to
safeguard from discovery those portions of income tax returns which are
irrelevant and immaterial ¼.
Maresca, 362 S.W.2d at 301.[5]
We
are persuaded by the reasoning of the Rhode Island and Texas decisions. Income tax returns contain confidential and
sensitive information. Taxpayers
reasonably expect a zone of privacy with regard to such materials. Because tax returns will often contain
material which is wholly irrelevant to the taxpayer's claim, we conclude that
an in camera examination by the trial court is the best and proper procedure
through which to filter such discovery demands. This procedure will require the court to balance the privacy
interests of the plaintiff in that material which is irrelevant to the claim
against the defendant's interest in obtaining information which legitimately
might lead to admissible evidence.
Although not armed with our decision, that is precisely what the trial
court did in this case.[6]
Collateral
Source
Although
our above holding disposes of the matter, we choose to address Konle’s
alternative argument that the collateral source doctrine also bars discovery of
the income tax returns. We
disagree.
In
Wisconsin, the “‘collateral source’ rule provides that a personal injury claimant’s
recovery is not to be reduced by the amount of compensation received from other
sources, i.e., sources ‘collateral’ to the defendant.” Lambert v. Wrensch, 135 Wis.2d
105, 110-11 n.5, 399 N.W.2d 369, 372 (1987).
“Under this rule, a plaintiff may recover the reasonable value of all
items of loss, regardless of whether the plaintiff received compensation for
his damages from a source other than the tortfeasor.” American Standard Ins. Co. v. Cleveland, 124 Wis.2d
258, 262, 369 N.W.2d 168, 171 (Ct. App. 1985); see also Payne v. Bilco
Co., 54 Wis.2d 424, 433, 195 N.W.2d 641, 647 (1972).
Konle's
other sources of income, including investments and dividends, by definition,
are not collateral sources. Konle did
not receive this income as compensation for the damages he sustained as a
result of the accident, whether from a defendant or otherwise. In other words, the other sources of income
at issue are completely unrelated to the accident which is the basis of this
action. Therefore, Konle’s reliance on the collateral source doctrine as a
means of preventing the discovery of his complete tax returns is inappropriate.
CONCLUSION
We
affirm the trial court's discovery ruling.
We remand for further proceedings on Konle's claim.
By
the Court.—Order affirmed and
cause remanded.
[1] We previously
accepted this case on petition for leave to appeal the trial court's nonfinal
discovery order.
[3] This basic rule
has been applied to cases outside the personal injury realm as well. See McKinnon v. Smock,
434 S.E.2d 92 (Ga. Ct. App. 1993), aff'd, 445 S.E.2d 526 (1994) (medical
malpractice case); Ashton v. Cherne Contracting Corp., 648 A.2d
1067 (Md. Ct. Spec. App. 1994) (worker’s compensation case); Hall v.
Lawlis, 907 S.W.2d 493 (Tex. 1995) (wrongful termination suit); Maresca
v. Marks, 362 S.W.2d 299 (Tex. 1962) (suit seeking profits during a
period of employment); Crane v. Tunks, 328 S.W.2d 434 (Tex. 1959)
(real estate action), overruled on other grounds by Walker v.
Packer, 827 S.W.2d 833 (Tex. 1992).
[4] The plaintiff
argued that contributions to charities, income from investments and the like
were matters as to which the defendant could not establish “good cause” for
disclosure of the complete returns under the discovery rules. Novogroski v. O'Brien, 261
A.2d 283, 284 (R.I. 1970). While the
“good cause” standard was later deleted in favor of a test of relevancy as a
method to broaden the discovery process, the court was still not willing to
order production of the entire tax returns.
See id. at 285.
[5] New York has
fashioned a rule which appears to support Page's position in cases involving
claimants who, like Konle, are self-employed.
Because such situations present the opportunity to falsify employment
records and in order to accommodate the defendant’s need for accurate
information, New York has held that a defendant is entitled to the production
of a self-employed plaintiff’s complete income tax returns. Lane v. D’Angelos, 485
N.Y.S.2d 84, 85-86 (N.Y. App. Div. 1985).
However, even under this rule, the New York courts have nonetheless
recognized the authority of the trial court to conduct in camera inspection of
the tax returns and to redact therefrom the matters unrelated to the claim for
loss of earnings. Bauer v. Huber,
487 N.Y.S.2d 303, 304 (N.Y. Sup. Ct. 1985) (ordering an in camera inspection
and necessary redaction of the tax returns of a wage earner employed by a close
corporation bearing his surname).
[6] Page also argues
that Konle's complete tax returns are necessary to determine if there were
reasons or motives other than the accident for Konle to reduce his legal
practice, thus explaining the drop in his income. We find it unnecessary to address this argument since we hold
that only those portions of income tax returns which are relevant to the loss
of earnings claim are discoverable regardless of the purpose for which the
returns are sought.
Although Page
does not ask that we do so, we have reviewed the disputed returns in this case,
and we state our agreement with the trial court's conclusion that those
portions not revealed to Page are indeed not relevant to Konle's loss of
earnings claim.