Opinion
NOT TO BE PUBLISHED
San Diego County Super. Ct. No. 37-2007-75163-CU-OR-EC.
NARES, Acting P. J.
Proceedings in mandate from discovery rulings of the Superior Court of San Diego County, Eddie Sturgeon, Judge. Petition granted in part, denied in part, and matter remanded with directions for further proceedings.
This writ petition proceeding, brought by defendants and petitioners RP Communities, LLC (RP Communities), M.W. Reynolds Construction Company, Inc. (M.W. Reynolds Construction), and Michael Reynolds (Reynolds) (collectively the Reynolds defendants or petitioners) in this action against them for trespass, nuisance, negligence and injunctive relief, arises from rulings denying in part their motion for a protective order through which they sought to avoid compliance with notices of deposition and requests for production of documents regarding their financial information propounded by plaintiffs and real parties in interest Richard and Judy Bonjorno (together the Bonjornos), who sought the discovery in support of their claim that RP Communities and M.W. Reynolds Construction are Reynolds's alter egos.
In their petition, the Reynolds defendants seek a writ of mandate directing the trial court to (1) vacate the court's ruling permitting discovery of Reynolds's personal financial records for the preceding three-year period; (2) vacate the court's ruling permitting discovery of all of the Reynolds defendants' financial records on the ground the Bonjornos failed to comply with the requirements of Civil Code section 3295, subdivision (c) (hereafter section 3295(c)); (3) in the alternative, limit discovery to issues relevant to, or calculated to lead to the discovery of admissible evidence relating to, the Bonjornos' alter ego claim; and (4) impose a pleading rule requiring that all plaintiffs asserting an alter ego claim "plead the fraud or inequitable result element with specificity."
All further statutory references are to the Civil Code unless otherwise specified.
In support of their petition, the Reynolds defendants contend that (1) allowing discovery of Reynolds's personal finances is an unwarranted invasion of his privacy and an abuse of the court's discretion; (2) allowing discovery of the Reynolds defendants' financial records violates section 3295(c) and is an abuse of the court's discretion because section 3295(c) "mandates that no pretrial discovery about a defendant's financial condition is allowed without a court order, " and, "[i]f the Legislature intended to create an exception for alter ego discovery, it would have done so"; and (3) if financial discovery is allowed to support an alter ego claim, abuse of such discovery would be checked if the plaintiff had to allege the fraud or inequitable result element of such a claim with specificity.
We conclude the ruling allowing discovery of Reynolds's personal financial information is an unwarranted invasion of his constitutionally protected right to privacy and an abuse of the court's discretion. We also conclude section 3295(c) is inapplicable, and we need not decide whether the fraud or inequitable result element of an alter ego claim must be pleaded with specificity. Accordingly, we grant the petition in part, deny it in part, and remand the matter with directions for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
This case arose when the Reynolds defendants, who were engaged in the construction of a residential development known as Ponderosa Estates in Alpine (the project), California, allegedly used the Bonjornos' private road without their permission, causing property damage and interfering with the Bonjornos' quiet use and enjoyment of their property.
A. Bonjornos' Alter Ego Claim
The Bonjornos sued the Reynolds defendants, alleging causes of action for trespass, nuisance, negligence, and injunctive relief. In addition to injunctive relief, the Bonjornos sought recovery of compensatory and punitive damages.
In their complaint, the Bonjornos alleged RP Communities and M.W. Reynolds Construction Construction are alter egos of Reynolds "because there is 1) a unity of interest, and 2) [the] Bonjornos will suffer a fraudulent or inequitable result if the court fails or refuses to pierce the corporate veil." In support of their alter ego claim, the Bonjornos alleged the Reynolds defendants "commingled funds and other assets, failed to segregate funds of the separate entities, diverted funds or assets to uses for other entities, failed to maintain appropriate records and separation of the respective businesses, confused the records of the separate entities, had the same ownership, staffed the entities with the same directors and officers in the responsible supervisory or management positions, used the same office or business location for multiple entities, used the disregarded legal formalities and failed to maintain arm's length relationships among related entities by, for example, failing to have a written contract between [RP Communities] and [M.W. Reynolds Construction] for the construction of units that are the subject of this suit, manipulated assets and liabilities between entities so as to concentrate the assets in one and the liabilities in another, and formed and used the entities to transfer among them liabilities of each other."
B. Bonjornos' Initial Request for Production of Financial Records
In late 2007 the Bonjornos propounded their request for production, set two, on RP Communities, which sought records concerning RP Communities' profits and finances. RP Communities responded with objections only.
In a meet-and-confer letter, the Bonjornos cited Rawnsley v. Superior Court (1986) 183 Cal.App.3d 86 (Rawnsley) for the proposition that the alter ego allegations in their complaint entitled them to the requested financial discovery without a motion under section 3295(c) because such discovery was directly relevant to the alter ego claim.
In their written response, the Reynolds defendants argued the financial discovery was "not germane to any of the elements of your claims" and objected that the discovery sought "financial information to which [the Bonjornos were] not entitled, absent an order pursuant to [section 3295]."
C. Bonjornos' Abandoned Motion To Compel Further Responses
The Bonjornos filed a motion to compel further responses to their request for production, set two. The motion was set for a March 2008 hearing before the Honorable Laura W. Halgren, who did not hear the motion because the Bonjornos' action was consolidated with another case (Kehder v. RP Communities, LLC) after the motion was filed, and the consolidated case was transferred to the Honorable Eddie C. Sturgeon. Following the consolidation of the two cases, the Bonjornos did not refile their motion to compel further responses, and thus the discovery dispute was not resolved.
San Diego County Superior Court case No. GIC867858.
D. Bonjornos' Second Set of Requests for Production of Financial Records
The instant discovery dispute arose in August 2009 when the Bonjornos noticed the taking of seven depositions. Due to scheduling concerns, the notices were served again in November 2009.
The record on appeal contains copies of five of the seven notices of deposition. The Bonjornos noticed the taking of the depositions of (1) Reynolds; (2) the most knowledgeable persons at RP Communities; (3) the most knowledgeable persons at M.W. Reynolds Construction; (4) Neal Reynolds; and (5) Angel Jaime.
In the deposition notices, the Bonjornos requested production of about 190 categories of documents, most of which were the same financial records they had sought earlier in their request for production, set two (discussed, ante).
In their requests for production of financial records, the Bonjornos sought (among others) the following 10 categories of documents: (1) All financial statements of RP Communities and M.W. Reynolds Construction from inception to present, including year-end and interim balance sheets, income statements, statements of cash flow, and statements of shareholders' equity; (2) schedules of aged accounts payable, aged accounts receivable, and work progress for RP Communities and M.W. Reynolds Construction regarding the project; (3) all bank and credit card statements for all business accounts for RP Communities and M.W. Reynolds Construction "from... inception to the present"; (4) all cash receipts journals, cash disbursement journals, payroll journals, sales journals for two years, and all general ledgers for RP Communities and M.W. Reynolds Construction " from... inception to the present"; (5) all check registers, deposit slips, bankbooks, and cancelled checks for all of the Reynolds defendants, including Reynolds in his individual capacity, for the prior three-year period; (6) all vendor invoices for RP Communities and M.W. Reynolds Construction " from... inception to the present"; (7) all loan or credit line documents of whatever kind (including applications) for RP Communities and M.W. Reynolds Construction " from... inception to the present"; (8) all contracts for RP Communities and M.W. Reynolds Construction " from... inception to the present, " including 39 specified subcategories; (9) all documents related to the net worth of RP Communities and M.W. Reynolds Construction; and (10) all income and property tax returns for RP Communities and M.W. Reynolds Construction " from... inception to the present."
In their August 21, 2009 meet-and-confer letter, the Reynolds defendants objected to the Bonjornos' document requests, asserting (among other things) that (1) the Bonjornos already possessed many of the requested documents and many were the subject of prior discovery requests; (2) many of the requests invaded the right to financial privacy; (3) the Bonjornos had not obtained a court order under section 3295(c); (4) the financial discovery was inappropriate because the trial court had issued a tentative ruling striking the Bonjornos' claim for punitive damages; (5) the Bonjornos' alter ego claim was unrelated to any substantive issue in the lawsuit and that claim did not "create an exception to [section] 3295(c)"; and (6) RP Communities had $2 million in insurance coverage to satisfy any judgment.
E. Summary Adjudication of the Bonjornos' Punitive Damages Claim
In October 2009 the court granted the Reynolds defendants' motion for summary adjudication of the Bonjornos' claim for punitive damages.
F. Additional Meet-and-Confer Efforts
In early November 2009 the Reynolds defendants sent to the Bonjornos' counsel another meet-and-confer letter that incorporated the objections set forth in their August 21, 2009 meet-and-confer letter and asserted the court had already adjudicated the punitive damages claim and the Bonjornos were not entitled to financial discovery without bringing a section 3295(c) motion. The letter indicated the Bonjornos had both admitted and denied that the purpose of the financial discovery was to assist with collections as to any judgment in this matter.
The Bonjornos responded, stating that their "Alter Ego discovery ha[d] nothing to do with collectability of the judgments" they were seeking.
G. Petitioners' Motion for Protective Order
In mid-November 2009 the Reynolds defendants filed a motion for a protective order under Code of Civil Procedure section 2025.420 through which they sought to avoid compliance with the notices of deposition and requests for production of financial documents propounded by the Bonjornos.
In support of their motion, petitioners argued (1) the Bonjornos were barred from propounding discovery that was substantially identical to the financial discovery they sought in their request for production, set two (discussed, ante), because the Bonjornos had abandoned their motion to compel further responses to that earlier discovery request after their case was consolidated with the Kehders' action; (2) discovery of the Reynolds defendants' financial status was prohibited without a motion under section 3295(c); (3) the alter ego allegations in the Bonjornos' complaint did not create a shortcut around section 3295(c) because the Reynolds defendants' finances did not go "to the heart" of any of the Bonjornos' causes of action for purposes of Rawnsley, supra, 183 Cal.App.3d 86, "as none of the elements of their claims required [the Reynolds defendants'] financial records"; (4) this discovery was "nothing more than a litigation tactic calculated to aid in the collection process and to provide settlement leverage, " which section 3295 seeks to avoid; and (5) the discovery was unduly burdensome and oppressive because it sought 30 years of financial records, and it sought all tax returns from inception to the present in violation of the taxpayer privilege.
In their opposition to the motion, the Bonjornos argued that (1) their alter ego allegations placed many issues in dispute that California law permits them to explore at trial; (2) contrary to the Reynolds defendants' thesis, reviewing courts in California have approved alter ego discovery without regard to punitive damages discovery; (3) the Bonjornos' failure to enforce their earlier discovery requests for production of documents does not prevent them from obtaining the same documents by noticing appropriate depositions; (4) the Reynolds defendants failed to show that production would be burdensome and oppressive; and (5) the Reynolds defendants' theory that California forbids a plaintiff from proceeding with discovery on the alter ego issue without first obtaining permission to conduct financial discovery on the "unrelated concept of 'punitive damages' " would "graft an entirely new meaning onto [section 3295]."
H. Hearing and Rulings
At the December 11, 2009 hearing on the Reynolds defendants' motion for a protective order, defense counsel argued that section 3295 bars pretrial discovery of a defendant's financial condition, asserting "[t]here are no exceptions, exclusions, limitations, or conditions on the statute." A plaintiff wanting a defendant's financial records, he asserted, "must proceed with an onerous motion under section 3295(c), " as the purpose of the statute is "to protect the defendant's financial privacy because punitive damage allegations are easily pled, and the Legislature is concerned about the pressure put upon defendants in settling unmeritorious cases in order to protect... financial privacy." "Alter ego is even easier to plead than punitive damages, " defense counsel added, and the Bonjornos' belief that alter ego allegations alone create an exception or shortcut around section 3295(c) "defies the purpose of [section] 3295, which is to protect financial privacy." Counsel also objected that the Bonjornos' request for discovery of three years of Reynolds's personal banking records was a gross invasion of his privacy.
Counsel for the Bonjornos argued that discovery is permitted in California unless the Legislature says it is not. He also argued that section 3295 does not prohibit all financial discovery─by its express terms section 3295 is limited to cases that involve a claim for punitive damages. Such discovery is permitted without a court order under section 3295 in an accounting case, a dissolution of a corporation case, or an action against a certified public accountant for malpractice.
1. Rulings
a. December 11 rulings
At the hearing on December 11, 2009, following oral arguments, the court found the Bonjornos' interpretation regarding their ability to obtain financial discovery without a section 3295(c) motion was correct; and granted in part, and denied in part, the Reynolds defendants' motion for a protective order. Specifically, the court (1) disallowed discovery of the Reynolds defendants' tax returns; (2) disallowed discovery "as to all [d]ocuments in excess of 10 years old"; (3) as to request No. 24 (which contained 39 subparts and sought discovery of "[a]ll contracts and [a]greements for [RP Communities] from its inception to the present, " disallowed discovery as to all of the listed subparts "except [c]ontracts"; and (4) denied the motion "[i]n all other particulars."
The court also denied without prejudice the Reynolds defendants' motion "to sever and bifurcate the alter ego issue at trial and to have it adjudicated after the liability phase" and stayed production of financial records in order to permit the Reynolds defendants to pursue this writ petition challenging the December 11 rulings.
b. December 18 rulings
At an ex parte hearing on December 18, 2009, the court granted in part and denied in part a second motion for protective order brought by the Reynolds defendants. The court ordered that "[t]he financial documents shall only be disclosed to [the Bonjornos'] counsel and its employees and agents and not to the [Bonjornos]; however, [the Bonjornos] may attend the depositions of Defendants concerning the financial documents and [the Bonjornos'] counsel may prepare summaries of the financial documents for [the Bonjornos]."
The court also ordered the Reynolds defendants to "produce for deposition [Reynolds], Neil Reynolds, and the Persons Most Qualified as specified in the original Notices of Taking Deposition, together with all documents demanded except as excluded by the Court...."
I. Writ Petition
On January 11, 2010, the Reynolds defendants filed their petition for writ of mandate and request for an immediate stay. By order dated January 14, 2010, this court stayed the court's orders dated December 11 and 18, 2009, requiring production of documents at the deposition scheduled to begin on January 20, 2010.
By order dated January 27, 2010, this court ordered the court to show cause why the relief requested by the Reynolds defendants in their petition should not be granted.
By order dated February 2, 2010, this court granted the Bonjornos' request as the real parties in interest to file a return to the order to show cause. The Bonjornos thereafter filed their verified return; and on March 5, 2010, the petitioners filed their verified reply to the return.
DISCUSSION
I. JURISDICTION
Both in their return and during oral argument in this writ petition proceeding, the Bonjornos claim through their counsel that this court must deny the petition for lack of jurisdiction because petitioners failed to provide an adequate record. Specifically, citing California Rules of Court, rule 8.486(b)(1)(A), and Sherwood v. Superior Court (1979) 24 Cal.3d 183 (Sherwood), the Bonjornos contend that petitioners "[a]t most" only provided a copy of the notice of ruling prepared by the Bonjornos' counsel, and petitioners' failure to include in the record a copy of a written order "usurps this Court's jurisdiction to entertain this Petition." We reject this contention.
All further rule references are to the California Rules of Court.
A. Applicable Legal Principles
Rule 8.486(b)(1)(A) provides that "[a] petition that seeks review of a trial court ruling must be accompanied by an adequate record, including copies of: [¶]... [t]he ruling from which the petition seeks relief." (Italics added.)
In Sherwood, supra, 24 Cal.3d at page 186, the California Supreme Court explained that "[a] defendant seeking review of a ruling of the trial court by means of a petition for extraordinary writ must provide the appellate court with a record sufficient to permit such review." (Italics added.) Sherwood also explained that, "[t]o be adequate, such a record should ordinarily include any written motion and opposition thereto together with their respective points and authorities, any relevant pleadings or reporter's transcripts, and any written dispositive order." (Id. at pp. 186-187, italics added.)
B. Analysis
Applying the foregoing principles, we conclude petitioners have provided a record that it is adequate to permit review of the court's discovery rulings in this writ proceeding, and thus this court has jurisdiction to conduct such review notwithstanding the fact that a formal written order memorializing those rulings is not contained in the record. Nothing in either rule 8.486(b)(1)(A) or Sherwood, supra, 24 Cal.3d 183, suggests that if the record provided in support of a writ petition is otherwise sufficient to permit review of the trial court's challenged rulings, the failure of the petitioners to include in the record a copy of a written order deprives this court of jurisdiction over this matter. As already noted, rule 8.486(b)(1)(A) requires that the petition be accompanied by an "adequate record, " including a copy of the "ruling from which the petition seeks relief."
Here, the petition is accompanied by both a copy of the notice of ruling that was prepared by the Bonjornos' trial counsel, which sets forth the court's rulings; and a copy of the reporter's transcript of the hearing at which the court made those rulings. The copies of the notice of ruling and the reporter's transcript constitute an adequate record for purposes of review. Petitioners have thus complied with the requirements of rule 8.486(b)(1)(A).
The Bonjornos' reliance on Sherwood is unavailing. As already noted, Sherwood explains that an "adequate" record should "ordinarily" include (among other things) "any written dispositive order, " but it does not hold that if a petitioner has provided a record that is sufficient to permit review, the petitioner's failure to include in the record a written order deprives the reviewing court of jurisdiction. (Sherwood, supra, 24 Cal.3d at pp. 186-187.) For the foregoing reasons, we reject the Bonjornos' contention that this court lacks jurisdiction over this matter.
II. REYNOLDS'S RIGHT TO FINANCIAL PRIVACY
The Reynolds defendants first contend the court's ruling allowing discovery of Reynolds's personal finances is an unwarranted invasion of his constitutional right to privacy and an abuse of the court's discretion. We conclude the court abused its discretion, and unnecessarily infringed upon Reynolds's constitutionally protected right to privacy in his financial affairs, by denying the Reynolds defendants' motion for a protective order with respect to discovery of Reynolds's personal finances.
In this contention, petitioners do not challenge the court's ruling with respect to the portion of request No. 21 directed at RP Communities and M.W. Reynolds Construction.
A. Background
Among the Bonjornos' numerous requests for production of financial records was request No. 21, which sought discovery of all check registers, deposit slips, bankbooks, and cancelled checks for all of the Reynolds defendants, including Reynolds in his individual capacity, for the prior three-year period.
At the hearing on the Reynolds defendants' motion for a protective order, defense counsel, Thomas Ladegaard, argued that request No. 21 for Reynolds's personal banking records for a period of three years was a "gross invasion of [Reynolds's] privacy":
"Anybody can sue anybody. And by simply alleging alter ego, Mr. Reynolds's personal banking records for three years are now subject to scrutiny by [the Bonjornos'] counsel. This is a gross invasion of his privacy because... every time you go to lunch, anytime you go anywhere and swipe your ATM card there's a banking record of that. Mr. Reynolds' personal lifestyle habits shouldn't be subject to scrutiny by [the Bonjornos'] counsel." (Italics added.)
Noting it was "fine" that the Bonjornos' counsel was seeking to discover evidence that Reynolds was "using the development business as a personal piggy bank, " defense counsel argued the Bonjornos' document requests should be limited to corporate financial records:
"Let him review the corporate credit card statements and bank statements, not Mr. Reynolds' personal statements. If the corporate statements show he's using the corporate funds for personal purposes, that's fair game for alter ego discovery.... I request that this be limited so that it only relates to the corporate banking records."
When the court asked the Bonjornos' counsel, Jim Mahacek, for his response, Mahacek indicated his discovery requests regarding Reynolds's personal financial records were proper under the alter ego doctrine:
"Your Honor, ... we don't know if Mr. Reynolds, out of his personal accounts, is paying... what should be corporate debts on or off the corporate books. If he's taking out corporate clients and soliciting business on behalf of the corporation, for example, to use the analogy, to lure customers to the corporations and not running it through the corporation─running those kind(s) of solicitations only through his own only personal account, that shows that he could care less about the various corporations. [¶] And in that case it's the other half of the alter ego. Not only are corporations paying his debts, but in that particular instance he would personally be paying debts which should be chargeable to the corporation. That shows alter ego. That shows a disregard for the true difference between the two. [¶] We can only... get that information to find out [whether he] was he paying corporate debts on or off the books by looking at his own records."
Indicating it understood the parties' arguments, the court denied the motion for a protective order as to the Bonjornos' request for production No. 21, stating: "That one is in. So [the Bonjornos are] entitled to that."
B. Applicable Legal Principles
To resolve the issue presented, we must review the legal principles that guide our analysis regarding the right of an individual to financial privacy, the scope of permissible discovery when such a privacy interest is involved in a discovery dispute, and the alter ego doctrine.
1. An individual's constitutional right to privacy in financial affairs
The United States Constitution "protects the right of privacy, without mentioning it by name." (Cal. Judges Benchbook: Civil Proceedings (CJER 1994) Discovery, § 4.121, p. 76, citing Griswold v. Connecticut (1965) 381 U.S. 479.) Article I, section 1 of the California Constitution provides that all people have certain "inalienable rights, " and among these is "pursuing and obtaining... privacy." (Italics added.)
Article I, section 1 of the California Constitution provides in full: "All people are by nature free and independent and have inalienable rights. Among these are enjoying and defending life and liberty, acquiring, possessing, and protecting property, and pursuing and obtaining safety, happiness, and privacy." (Italics added.)
The inalienable and constitutionally protected right of privacy, which is the right to be left alone, is a fundamental and compelling interest of our society that is essential to the equally fundamental rights guaranteed by the First, Third, Fourth, Fifth and Ninth Amendments to the United States Constitution. (City of Santa Barbara v. Adamson (1980) 27 Cal.3d 123, 130.) However, the constitutional right of privacy is "not absolute"; it may be abridged only when there is a "compelling" and opposing state interest. (Britt v. Superior Court (1978) 20 Cal.3d 844, 855-856 (Britt); City of Santa Barbara, supra, 27 Cal.3d at p. 131; Board of Trustees v. Superior Court (1981) 119 Cal.App.3d 516, 524-525 (Board of Trustees).)
One such opposing state interest recognized by the California Supreme Court is the "historically important state interest of facilitating the ascertainment of truth in connection with legal proceedings." (In re Lifschutz (1970) 2 Cal.3d 415, 432; Britt, supra, 20 Cal.3d at p. 857; Board of Trustees, supra, 119 Cal.App.3d at p. 525.)
Personal financial information is generally protected by the constitutional right of privacy. (See DeMeo & DeMeo, 1 Cal. Deposition and Discovery Practice (LexisNexis 2009) § 30.02[3][a], p. 30-12 ["[p]rivate financial information is generally protected by the constitutional right of privacy"], citing Carmel-by-the-Sea v. Young (1970) 2 Cal.3d 259, 268 ["protection of one's personal financial affairs... against compulsory public disclosure is an aspect of the zone of privacy which... falls within that penumbra of constitutional rights into which the government may not intrude absent a showing of compelling need"]; Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group (2009) ¶ 8:303, p. 8C-91 (rev. #1, 2009) ["[a] right of privacy exists as to a party's confidential financial affairs"].)
2. Scope of permissible discovery and burden of the requesting party
In Hecht, Solberg, Robinson, Goldberg & Bagley v. Superior Court (2006) 137 Cal.App.4th 579, this court addressed the general standards governing discovery in California and explained that "Code of Civil Procedure section 2017.010 et seq. provide the framework allowing a party to 'obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action... if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence.' " (Hecht, supra, at p. 593, quoting Code Civ. Proc., § 2017.010, italics added.) However, even if the information sought is "relevant to the subject matter" within the meaning of that section, Code of Civil Procedure section 2017.020, subdivision (a) mandates that the trial court "shall" limit the scope of the discovery if it determines pursuant to a motion for protective order by a party or other affected person that "the burden, expense, or intrusiveness of that discovery clearly outweighs the likelihood that the information sought will lead to the discovery of admissible evidence." (Italics added.)
Code of Civil Procedure section 2017.010 provides: "Unless otherwise limited by order of the court in accordance with this title, any party may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action or to the determination of any motion made in that action, if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence...."
Code of Civil Procedure section 2017.020, subdivision (a) provides in full: "The court shall limit the scope of discovery if it determines that the burden, expense, or intrusiveness of that discovery clearly outweighs the likelihood that the information sought will lead to the discovery of admissible evidence. The court may make this determination pursuant to a motion for protective order by a party or other affected person. This motion shall be accompanied by a meet and confer declaration under Section 2016.040."
Furthermore, "[w]hen privacy rights are at stake, a different test applies: The information sought must be directly relevant to one of the issues in the action; the prospect that the inquiry might lead to admissible evidence does not suffice." (Cal. Judges Benchbook: Civil Proceedings, supra, Discovery, § 4.128, p. 79, first italics added, citing Board of Trustees, supra, 119 Cal.App.3d at p. 525.)
In addition, "even when discovery of private information is found directly relevant to the issues of ongoing litigation, it will not be automatically allowed; there must then be a 'careful balancing' of the 'compelling public need' for discovery against the 'fundamental right of privacy.' " (Board of Trustees, supra, 119 Cal.App.3d at p. 525, italics added, quoting City of Santa Barbara v. Adamson, supra, 27 Cal.3d at p. 130; Valley Bank of Nevada v. Superior Court (1975) 15 Cal.3d 652, 657 ["we indulge in a careful balancing of the right of civil litigants to discover relevant facts, on the one hand, with the right... to maintain reasonable privacy regarding... financial affairs, on the other"]; White v. Davis (1975) 13 Cal.3d 757, 774-775; see also Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra, ¶ 8:323, p. 8C-104 (rev. #1, 2009) [the trial court "must... 'carefully balance' the interests involved: i.e., the claimed right of privacy versus the public interest in obtaining just results in litigation, " italics omitted].)
Even where the balance weighs in favor of disclosure of private information because of a compelling state purpose, the scope of such disclosure must be narrowly circumscribed. An invasion of the right of privacy " 'must be drawn with narrow specificity.' " (Britt, supra, 20 Cal.3d at p. 856 [the compelling state purpose " 'cannot be pursued by means that broadly stifle fundamental personal liberties when the end can be more narrowly achieved, ' " quoting Shelton v. Tucker (1960) 364 U.S. 479, 488]; Board of Trustees, supra, 119 Cal.App.3d at p. 526; see also Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra, ¶ 8:321, p. 8C-103 (rev. #1, 2009) [discovery of confidential information "will not be ordered if the information sought is available from other sources or through less intrusive means"].)
The party seeking discovery bears the burden of "show[ing] a particularized need for the confidential information sought." (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra, ¶ 8:320, p. 8C-103 (rev. #1, 2009).)
3. Alter Ego Doctrine
A corporation is ordinarily regarded as a legal entity that is separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations. (Robbins v. Blecher (1997) 52 Cal.App.4th 886, 892.)
Under the equitable alter ego doctrine, the courts may ignore the corporate entity and deem the corporation's acts to be those of the persons or organizations actually controlling the corporation when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose. (Robbins v. Blecher, supra, 52 Cal.App.4th at p. 892; see also Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538 (Sonora) ["A corporate identity may be disregarded─the 'corporate veil' pierced─where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation."].)
"In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone." (Sonora, supra, 83 Cal.App.4th at p. 538.)
A trial court must look at all the circumstances in a given case to determine whether the alter ego doctrine should be applied. (Sonora, supra, 83 Cal.App.4th at p. 539.) " 'Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other.' [Citation.] Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers." (Id. at pp. 538-539.)
"The alter ego doctrine does not guard every unsatisfied creditor of a corporation but instead affords protection where some conduct amounting to bad faith makes it inequitable for the corporate owner to hide behind the corporate form. Difficulty in enforcing a judgment or collecting a debt does not satisfy this standard." (Sonora, supra, 83 Cal.App.4th at p. 539.)
B. Analysis
Applying the foregoing principles, we conclude the portion of the court's ruling requiring Reynolds to produce to the Bonjornos' counsel all of his check registers, deposit slips, bank books, and cancelled checks for the previous three-year period is an unwarranted invasion of Reynolds's constitutionally protected right to financial privacy and an abuse of the court's legal discretion. As the parties seeking discovery of this unquestionably personal, private, and confidential information, the Bonjornos bore the burden of showing that (1) the discovery was directly relevant to an issue in this case; (2) their need for this discovery outweighed Reynolds's constitutionally protected right to financial privacy; and (3) the scope of the discovery was narrowly circumscribed in that the financial documents they requested were not available from other sources or through less intrusive means. In the exercise of its discretion in ruling on this portion of the motion for a protective order, the court, in turn, was required to (1) place on the Bonjornos, as the parties seeking the discovery, the burden of showing a particularized need for Reynolds's confidential financial information that outweighed Reynolds's right to privacy; (2) carefully balance Reynolds's claimed right of privacy in his personal financial affairs against the competing state interest of facilitating the ascertainment of truth in connection with legal proceedings and the Bonjornos' claimed need for such discovery; and (3) narrowly circumscribe the discovery order so as to minimize intrusion into Reynolds's personal and confidential financial affairs.
The Bonjornos failed to meet their burden of showing that all of their requests for Reynolds's financial information were directly relevant to their claim that RP Communities and M.W. Reynolds Construction are Reynolds's alter egos. As already noted, the Bonjornos demanded production of all of Reynolds's check registers, deposit slips, bankbooks, and cancelled checks for the preceding three-year period. To prove at trial that RP Communities and M.W. Reynolds Construction are Reynolds's alter egos, the Bonjornos must show by a preponderance of the evidence that (1) there is such a unity of interest and ownership between Reynolds and the corporations that their the separate personalities do not in reality exist; and (2) an inequitable result will occur if the alleged acts from which this tort actions arose are treated as those of the corporations alone. (Sonora, supra, 83 Cal.App.4th at p. 538.) Even if we were to assume the Bonjornos' requests for Reynolds's financial records were both relevant to the subject matter of this lawsuit and reasonably calculated to lead to the discovery of admissible evidence within the meaning of Code of Civil Procedure section 2017.010, these circumstances are legally insufficient to warrant the discovery requested in light of Reynolds's constitutionally protected financial privacy rights at stake in this discovery dispute. (Board of Trustees, supra, 119 Cal.App.3d at p. 525; Cal. Judges Benchbook: Civil Proceedings, supra, Discovery, § 4.128, p. 79.) The Bonjornos have not shown that all of their intrusive requests for Reynolds's personal financial information are directly relevant to either element of their alter ego claim. While the commingling of funds and other assets is one factor the trier of fact may consider (Sonora, supra, 83 Cal.App.4th at p. 538), and certain portions of Reynolds's financial records might be directly relevant to the factual issue of whether he and his alleged corporate alter egos commingled funds and assets, significant portions of those confidential records would have no direct relevance to the issues raised by the Bonjornos' alter ego claim to the extent those portions reflected only Reynolds's personal lifestyle spending preferences and practices that were in no way related to the corporate entities.
We also conclude for the same reasons that the Bonjornos failed to meet their burden of showing that the scope of their discovery requests for Reynolds's personal financial information was narrowly circumscribed and that the information was not available from other sources or through less intrusive means. To the extent the document requests propounded on Reynolds sought confidential information that would show the nature of all of his purchases and expenditures during the specified three-year period, regardless of whether they were in any way related to RP Communities and M.W. Reynolds Construction, they were unjustifiably overbroad and intrusive.
The Bonjornos also failed to adequately explain why the unchallenged document requests for the financial records of the two alleged corporate alter egos, RP Communities and M.W. Reynolds Construction, were inadequate for purposes of discovery, and why their need for broad discovery of Reynolds's personal financial information outweighed his constitutionally protected right to financial privacy.
We also conclude the record of the December 11 hearing shows the court did not place on the Bonjornos, as the parties seeking to invade Reynolds's constitutionally protected right to financial privacy, the burden of showing a particularized need for the extensive confidential information they requested. Although the court did generally ask the Bonjornos' counsel to identify the financial records the Bonjornos were seeking from the Reynolds defendants and indicated it was limiting the document requests to a 10-year period, the court did not advise counsel with respect to request No. 21 concerning Reynolds's personal financial records that the Bonjornos had the burden of showing a particularized need for those confidential records.
The record also shows that despite defense counsel's objection that request No. 21 was a "gross invasion of [Reynolds's] privacy, " the court failed to engage in a careful balancing of Reynolds's claimed right of privacy in his personal financial affairs against the competing state interest of facilitating the ascertainment of truth in connection with legal proceedings and the Bonjornos' claimed need for such discovery. Had the court done so, it could have narrowly circumscribed its discovery ruling so as to minimize the intrusion into Reynolds's personal and confidential financial affairs.
In sum, we conclude the court's ruling requiring Reynolds to produce to the Bonjornos' counsel all of his check registers, deposit slips, bank books, and cancelled checks for the previous three-year period is an unwarranted invasion of Reynolds's constitutionally protected right to financial privacy and an abuse of the court's legal discretion. Accordingly, that ruling must be vacated and the matter remanded for further proceedings in accordance with the views expressed in this opinion.
III. SECTION 3295(C)
The Reynolds defendants contend that allowing discovery of their financial records violates section 3295(c) and is an abuse of the court's discretion because section 3295(c) "mandates that no pretrial discovery about a defendant's financial condition is allowed without a court order;" the Bonjornos did not obtain an order under section 3295(c); and, "[i]f the Legislature intended to create an exception for alter ego discovery, it would have done so." (Underscoring omitted.) We reject this contention.
A. Applicable Legal Principles
Resolution of the issue presented involves construction of section 3295(c). "The objective of statutory construction is to determine the intent of the enacting body so that the law may receive the interpretation that best effectuates that intent. [Citation.] 'We first examine the words themselves because the statutory language is generally the most reliable indicator of legislative intent. [Citation.] The words of the statute should be given their ordinary and usual meaning and should be construed in their statutory context.' [Citation.] If the plain, commonsense meaning of a statute's words is unambiguous, the plain meaning controls." (Fitch v. Select Products Co. (2005) 36 Cal.4th 812, 818.)
"We may not, under the guise of construction, rewrite the law or give the words an effect different from the plain and direct import of the terms used." (California Fed. Savings & Loan Assn. v. City of Los Angeles (1995) 11 Cal.4th 342, 349.)
The interpretation of a statute presents a question of law subject to de novo appellate review. (CBS Broadcasting, Inc. v. Superior Court (2001) 91 Cal.App.4th 892, 906.)
B. Analysis
The plain, express language in section 3295(c) and section 3295, subdivision (a), and in section 3294 to which section 3295(c) specifically refers, shows the Legislature intended that application of section 3295(c) be limited to the question of the pretrial discoverability of the profits and financial condition of a defendant in an action involving a claim under section 3294 for punitive damages. Section 3295(c), which (as we shall explain) limits pretrial discovery of a defendant's profits and financial condition in an action involving a "claim pursuant to Section 3294" for punitive damages, provides in part:
"No pretrial discovery by the plaintiff shall be permitted with respect to the evidence referred to in paragraphs (1) and (2) of subdivision (a) unless the court enters an order permitting such discovery pursuant to this subdivision.... Upon motion by the plaintiff supported by appropriate affidavits and after a hearing, if the court deems a hearing to be necessary, the court may at any time enter an order permitting the discovery otherwise prohibited by this subdivision if the court finds, on the basis of the supporting and opposing affidavits presented, that the plaintiff has established that there is a substantial probability that the plaintiff will prevail on the claim pursuant to Section 3294 ." (Italics added.)
The foregoing second italicized phrase, "claim pursuant to Section 3294, " as used in section 3295(c) clearly refers to a claim under section 3294 for punitive (or exemplary) damages. Section 3294, subdivision (a) (hereafter section 3294(a)) provides:
"In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant."
Furthermore, subdivision (a) of section 3295 (hereafter section 3295(a)), to which section 3295(c) specifically refers in the phrase "evidence referred to in paragraphs (1) and (2) of subdivision (a)" set forth in section 3295(c) (discussed, ante), provides:
"The court may, for good cause, grant any defendant a protective order requiring the plaintiff to produce evidence of a prima facie case of liability for damages pursuant to Section 3294 , prior to the introduction of evidence of: [¶] (1) The profits the defendant has gained by virtue of the wrongful course of conduct of the nature and type shown by the evidence. [¶] (2) The financial condition of the defendant." (Italics added.)
The foregoing italicized phrase "damages pursuant to Section 3294, " as used in section 3295(a), like the phrase "claim pursuant to Section 3294" used in section 3295(c), clearly refers to punitive damages.
We conclude the foregoing express provisions of section 3295(c), and of 3294(a) and 3295(a) to which section 3295(c) specifically refers, plainly show the Legislature intended that application of section 3295(c) be limited to the question of the pretrial discoverability of the profits and financial condition of a defendant in an action involving a claim for punitive damages under section 3294.
Our conclusion finds support in both case law and the legislative history of section 3295(c). In Rawnsley, supra, 183 Cal.App.3d at page 88, the Court of Appeal explained that section 3295 "limits the pretrial discovery rights of a plaintiff seeking information about a defendant's financial condition for the purpose of assessing a claim for punitive damages." (Italics added.) The Rawnsley court stated that section 3295 codified "procedural safeguards" created by the courts to "prevent[] 'fishing expeditions' by a plaintiff by allowing the court to grant a protective order requiring the plaintiff to establish a prima facie right to recover punitive damages before any evidence of defendant's net worth may be introduced." (Rawnsley, supra, 183 Cal.App.3d at pp. 90-91, italics added.) Rawnsley also explained that under section 3295, a plaintiff in such a case "may... require the defendant to identify documents which may be admissible (not merely relevant) and provide a list of witnesses who may be competent to testify about defendant's financial condition[; but, b]eyond that, no pretrial discovery is permitted without a court order, and such order can be granted only upon a finding that there is a 'substantial probability that the plaintiff will prevail' on his punitive damages claim." (Rawnsley, supra, at p. 91, italics added.)
These procedural safeguards, Rawnsley noted, "were designed to protect the defendant from a specific type of discovery abuse: a situation in which the plaintiff puts forth an easily alleged cause of action for punitive damages, thus requiring a defendant to expend the time and money 'necessary to the compilation of a complex mass of information unrelated to the substantive claim involved in the lawsuit and relevant only to the subject matter of a measure of damages which may never be awarded.' " (Rawnsley, supra, 183 Cal.App.3d at p. 91, first italics added.) Rawnsley also held that in an action alleging a claim for punitive damages, section 3295(c) does not bar pretrial discovery of a defendant's financial condition where the financial information "goes to the heart" of the substantive cause of action alleged in the case. (Ibid.; see also Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra, ¶ 8:339.12, p. 8C-113 (rev. #1, 2009) ["In such cases, the fact that punitive damages are being sought does not prevent discovery on elements of the substantive claim."].)
In Jabro v. Superior Court (2002) 95 Cal.App.4th 754, 758, after examining the legislative history of section 3295(c), this court stated that "we interpret the language of section 3295(c), requiring the trial court to find based on supporting and opposing affidavits that the plaintiff has established there is a substantial probability he will prevail on his claim for punitive damages, to mean that before a court may enter an order permitting discovery of a defendant's financial condition, it must (1) weigh the evidence submitted in favor of and in opposition to [the] motion for discovery, and (2) make a finding that it is very likely the plaintiff will prevail on his claim for punitive damages." (Italics added.) We explained in Jabro that "[s]ection 3295(c) (Sen. Bill No. 1989 (1979-1980 Reg. Sess.)) was enacted in 1980 in order to protect defendants from being subjected to pretrial discovery into their financial affairs until a plaintiff establishes the likelihood he will prevail on his punitive damages claim." (Jabro, supra, at p. 757, italics added.)
IV. SPECIFICITY OF PLEADING ALTER EGO
The Reynolds defendants also assert that, "if financial discovery is allowed to support an alter ego claim, abuse [of such discovery] would be checked if the plaintiff had to allege fraud or inequitable result with specificity." They maintain that "a plaintiff should not be allowed to plead alter ego as a vehicle for propounding invasive and sensitive financial discovery, without having to make any kind of preliminary showing, " and a plaintiff alleging an alter ego claim "should only be allowed to proceed if the pleadings were held to a higher degree of specificity."
We need not reach the merits of petitioners' comments in this regard. As they did not challenge the legal sufficiency of the Bonjornos' alter ego pleading allegations by means of a motion to strike or otherwise in the trial court, it would be inappropriate in this writ proceeding to issue an advisory opinion on the question of whether an alter ego claim should be pleaded with specificity.
DISPOSITION
Let a peremptory writ of mandate issue directing the superior court to vacate its ruling denying the Reynolds defendants' motion for a protective order as to the Bonjornos' request No. 21 for production of documents regarding Reynolds's personal financial records for the previous three-year period, and issue a new order consistent with this opinion. In all other respects, the petition is denied. The matter is remanded for further proceedings consistent with this opinion. The stay issued on January 14, 2010, is vacated. Petitioners shall recover their costs on this petition.
WE CONCUR: McDONALD, J., O'ROURKE, J.