LEGAL GUIDE: RIGHT TO FINANCIAL PRIVACY IN LITIGATION

Unfortunately, a tactic often used in litigation is to demand documents and information concerning an individual or corporation's financial affairs to intimidate and harass the other side. Fortunately, the law recognizes the highly sensitive and private nature of financial affairs and provides a fair amount of protection against such unwarranted intrusions.

Even when the information sought is relevant, an individual who is a party to litigation has a fundamental right of privacy regarding their confidential financial affairs under California Constitution, Article 1, Section 1. [Cobb v. Superior Court (1979) 99 Cal.App.3d 543, 550; Civil Code section 3295(c).] In addition, the confidential affairs of third persons (nonparties) are also entitled to privacy. [Valley Bank of Nevada v. Superior Court (1975) 15 Cal.3d 652,658.]

However, the right to privacy under the California Constitution is only applicable to natural persons and does not apply to corporations. [Roberts v. Gulf Oil Corporation (1983) 147 Cal.App.3d 770, 791, 796-797.] While a corporation does not have the same fundamental right of privacy afforded to individuals under the California Constitution, some right to privacy exists under the U.S. Constitution (combination of the 4th and 14th Amendments) and depend on the circumstances. The nature and purposes of the corporate entity and the nature of the interest sought to be protected will determine whether under given facts the corporate has a protectable privacy interest. Two critical factors in making this determination are the strength of the nexus between the entity and the human beings and the context in which the controversy arises. [Roberts v. Gulf Oil Corporation, supra, 147 Cal.App.3d @ 795-797.]

The privacy protection afforded to financial information is qualified and not absolute. As a result, generally disclosure may be ordered only if a compelling public interest would be served. In making this determination, the court must carefully balance the need for discovery versus the right of privacy.

Where there is a claim for punitive damages, special rules have been adopted to prevent "games playing." The right to pretrial discovery of defendant's net worth and profits is limited under Civil Code section 3295(c). Specifically, the plaintiff may require a defendant to identify documents in their possession that are admissible at trial (NOT merely relevant) regarding its profits or financial condition, in addition to identifying witnesses employed by or related to the defendant who would be most competent to testify as to its financial condition. However, no other pretrial discovery by plaintiff is permitted without a court order and such order can be granted only if there is a substantial probability (not just prima facie showing) that the plaintiff will prevail on the claim for punitive damages. [Also see, Kerr v. Rose (1990) 216 Cal. App.3d 1551, 1565.] The court must weigh the evidence presented by both sides and make a finding that it is very likely the plaintiff will prevail on the claim for punitive damages. [Jabro v. Superior Court (2002) 95 Cal.App.4th 754, 758, specifically noting that the prima facie standard noted in Weil & Brown et al., CA. PRAC.GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2014) is erroneous.]