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Chump Change: Avoiding Inflation of Punitive Damages by Restricting Discovery of Net Worth

Thumbnail image for 26271416_blog-Net Worth.jpgSince the Texas Supreme Court's 1988 Lunsford v. Morris decision, Plaintiffs claiming punitive damages have had the ability to obtain discovery about a Defendant's net worth. However, recent changes to the Texas Civil Practice and Remedies Code ("the Code") have made discovery of net worth more difficult for Plaintiffs and given Defendants a chance to fight back. 

Under Section 41.0115 of the Code, for all lawsuits filed on or after September 1, 2015, on a party's motion and after notice and hearing, "a trial court may authorize discovery of net worth if the court finds in a written order that the claimant has demonstrated a substantial likelihood of success on the merits of a claim for exemplary damages." The evidence submitted in support of, or in opposition to, the motion for net worth discovery "may be in the form of an affidavit or a response to discovery." Notably, if a trial court authorizes discovery of net worth, the trial court's order "may only authorize use of the least burdensome method available to obtain the net worth evidence."

In other words, instead of being entitled to discovery of net worth by default, a Plaintiff must now (1) file a motion with the court, (2) give notice to the Defendant, and (3) win over the Defendant's arguments at a hearing in front of a Judge. Furthermore, if the Defendant loses the hearing, the Plaintiff is limited to discovery of the least burdensome method available to obtain the net worth evidence (e.g., part of an auditor's report as opposed to complete income tax returns).

Not only does this new rule place a higher burden on Plaintiffs seeking discovery of net worth, but the rule also gives Defendants a chance to object and counter with a No-Evidence Motion for Summary Judgment if the Plaintiff files a Motion to Compel Discovery of Net Worth. Under Section 41.0115(d) of the Act, once the Plaintiff requests discovery of net worth, the court must "presume that the [Plaintiff] has had adequate time for the discovery of facts relating to exemplary damages for purposes of allowing [the Defendant] to move for summary judgment on the requesting party's claim for exemplary damages under Rule 166a(i) [of the] Texas Rules of Civil Procedure." Under this new rule, the Act gives Defendants a strong weapon to utilize against unsuspecting Plaintiffs' attorneys sending form discovery requests including questions about net worth, potentially resulting in the complete removal of the Plaintiff's exemplary damages claim.

Takeaways

  • Plaintiffs must now show a "substantial likelihood" that they will prevail on exemplary damage claims in order to obtain a court order for discovery of a Defendant's net worth.
  • Plaintiffs who successfully obtain a court order for discovery of net worth will be entitled only to the least burdensome method available to obtain that net worth evidence
  • Defendants may be able to utilize a No-Evidence Motion for Summary Judgment against unprepared Plaintiffs to remove exemplary damage claims from the suit.

Practical Defense Tips

  • Object to all discovery requests concerning net worth.
  • Be on the lookout for premature discovery requests pertaining to net worth and, if advantageous, utilize these requests to go on the offensive.
  • When a Plaintiff obtains a court order for discovery of net worth, prepare the more favorable and least burdensome method of obtaining the requested information.

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The Bassett Firm

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