Opinion
14145-21 14163-21 14702-21 18673-21 28663-21 28832-21 28853-21 29167-21 29170-21 30259-21 30286-21 30786-21 30791-21 30798-21 31341-21 31353-21 31735-21 587-22 2165-22 2341-22 2344-22 2353-22 2355-22
12-12-2023
HALYARD HOLDINGS, LLC, HALYARD, HOLDINGS GROUP, LLC, TAX MATTERS PARTNER, ET AL., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Joseph Robert Goeke, Judge
These cases involve a syndicated conservation easement donation. On July 19, 2023, petitioners issued a subpoena to Jones Lang LaSalle, Inc. (JLL), a third-party. The subpoena directed JLL to appear before the Court and produce documents on August 28, 2023. An attachment to the subpoena issued to JLL contains a list of "Documents to Be Produced." The specific documents to be produced were not clearly described. An introductory sentence provides that "The following Documents should be provided to us that relate to or reference the Taxpayers," but the individual document descriptions appear to be far broader. For example, one request is for "All Documents related to or referencing interviews and communications between or among Treasury and/or the IRS, JLL Valuation, and Third Parties, including but not limited to notes, transcriptions, or other Documents related to or referencing permitting, zoning, ordinances, mining, the Property, the Taxpayer, and/or Polk County, Florida." Petitioners issued a letter to JLL dated August 15, 2023, clarifying that petitioners were only seeking documents that relate to or reference the taxpayers in these cases.
Petitioners issued similar subpoenas to two other third parties. JLL and the two other third parties have been retained to act as expert witnesses (and/or provide other valuation services) for respondent in other syndicated conservation easement cases. Petitioners were aware of this at the time the subpoenas were issued. After the subpoenas were issued, respondent hired one of the other third parties to act as an expert witness for respondent in these cases.
On August 1, 2023, respondent filed a motion to quash or modify the subpoenas (motion to quash) issued to JLL and the other two third parties. Respondent's motion did not request sanctions. Respondent's motion to quash is not at issue but is relevant background information.
On August 18, 2023, JLL filed its own motion to quash the subpoena issued to JLL. In its motion, JLL seeks a sanction of attorney's fees pursuant to Tax Court Rule 147(d)(1). In a 19-page memorandum supporting its motion to quash, JLL alleged that petitioners' subpoena imposed an undue burden on JLL because the subpoena is overly broad, seeks documents and information that petitioners should instead procure from respondent through party discovery, is an attempt to avoid discovery rules pertaining to expert witnesses, and seeks "to discover information outside the purview of this proceeding and relating to a possible criminal investigation by the Department of Justice." JLL did not allege that it had no documents responsive to the subpoena (nor did respondent so allege in his August 1, 2023, motion). Indeed, JLL's memorandum suggests that it does have responsive documents-one sentence begins, "Because the responsive materials would be protected * * *." JLL had received petitioners' August 15, 2023, letter at the time JLL's motion to quash was filed.
On August 24, 2023, petitioners filed a response to the motions to quash filed by respondent and JLL. Petitioners allege that they issued the subpoenas, in part, because respondent had not produced certain information and documents sought by petitioners in discovery. Petitioner also alleges that the Court's rules regarding expert witness discovery do not apply because Tax Court Rule 70(c)(4) "does not apply to non-retained third-party firms."
We held a conference call with the parties on September 19, 2023, regarding the subpoenas and motions to quash. We expressed concern that the subpoenas appeared to be an attempt to avoid expert witness discovery rules. We directed the parties to attempt to come to an agreement regarding documents and information sought in the subpoenas, and to file status reports informing the Court of their progress.
The parties filed status reports on September 27, 2023. Petitioners' status report showed that petitioners withdrew 5 of petitioners' 19 document requests in the JLL subpoena by letter to JLL's counsel dated September 8, 2023. The same letter also provided that two other requests would be withdrawn "upon receipt of written confirmation that JLL is not in possession, custody, or control of documents responsive to those requests." Petitioners also allege that they "made settlement offers to each of the subpoenaed parties, contingent on Respondent withdrawing his motion to quash, which would have further narrowed the subpoenas' scope." Respondent's status report rehashes his prior arguments and alleges that "much of the information identified in the sprawling document descriptions [in the subpoenas] does not even exist."
We scheduled a hearing to take place on October 11, 2023, to discuss the motions to quash (and other unrelated matters). We also ordered the parties and third parties to file statements pursuant to Tax Court Rule 50(c) prior to the hearing. The statement filed by JLL is brief; the only substantive allegation is that "JLL has not been retained as an expert witness or advisor or had other involvement in any of the [cases involving petitioners]."
At the hearing on October 11, 2023, respondent's counsel stated that JLL had "already represented to not only Petitioners but also this Court that they have no responsive documents." Petitioners' counsel disputed this, stating that JLL "certainly did not make that representation to the Court, and it's illogical to conclude that they don't have responsive documents. If they did, they would have simply told us, hey, we got your subpoena, we don't have responsive documents." We directed the parties to "tie down whether or not these people really do have something," and then potentially proceed to asserting privileges. We also stated that perhaps "a written representation that's maybe clearer than * * * the 50(c) statements" could help. We gave the parties two weeks to attempt to resolve the matter.
The parties could not resolve the matter. Petitioners filed a status report on October 25, 2023, and respondent filed a status report on November 2, 2023. The status reports reflect show that JLL provided a statement to petitioners, under penalty of perjury, that JLL does not possess documents responsive to petitioners' (narrowed) subpoena. Despite JLL's representation, petitioners stated that they "believe that the representation[] provided by JLL * * * [is] deficient and contradicted by significant other information in the record undermining [its] claim[] that [it] do[es] not possess responsive documents." Petitioners requested that the Court hold another hearing to "question the subpoenaed parties directly." Respondent alleged that petitioners' claim is "baseless" and that another hearing "would be a complete waste of time."
By Order dated November 7, 2023, we granted JLL's motion to quash (as well as respondent's motion to quash). We directed petitioners to file a response "explaining why [JLL] should not receive attorney's fees." Petitioners filed their response on December 6, 2023. Petitioners argue that attorney's fees are not appropriate because: 1) JLL took three months to represent that it possessed no responsive documents; 2) JLL's responses to the subpoena implied that it had voluminous responsive documents; and 3) petitioners took reasonable steps to avoid imposing an undue burden or expenses on JLL.
Tax Court Rule 147(d)(1) provides
Avoiding Undue Burden or Expense; Sanctions: A party or attorney responsible for issuing and serving a subpoena must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena. The Court will enforce this duty and impose an appropriate sanction, which may include an award of lost earnings and
reasonable attorney's fees, against a party or attorney who fails to comply.Tax Court Rule 147(d)(1) is substantially similar to Federal Rule of Civil Procedure (FRCP) 45(d)(1). Court have interpreted FRCP 45(d)(1) to allow third parties to obtain fees/expenses from parties in the case or their counsel. See, e.g., In re Am. Nurses Assn., 643 Fed.Appx. 310 (4th Cir. 2016); Dika-Homewood, LLC v. Office Max, Inc., No. 22-MC-80766, 2022 U.S. Dist. LEXIS 156069, 2022 WL 3682214 (S.D. Fla. June 16, 2022); Beaver Cty. Employees' Ret. Fund v. Tile Shop Holdings, Inc., No. 16-MC-80076, 2016 U.S. Dist. LEXIS 172371, 2016 WL 7212308 (N.D. Cal. Dec. 13, 2016); Am. Int'l Life Assur. Co. v. Vazquez, No. 02 Civ. 141, 2003 U.S. Dist. LEXIS 2680, 2003 WL 548736, (S.D.N.Y. Feb. 25, 2003) (addressing predecessor to current FRCP 45(d)(1)). Petitioners do not contest this point of law. We find that JLL is permitted to seek attorney's fees from petitioners or their counsel pursuant to Tax Court Rule 147(d)(1). We will proceed to address whether attorney's fees should be awarded to JLL.
Courts have held that whether an undue burden has been imposed is a factual inquiry made on a case-by-case basis. Eades v. Chi. Title Ins. Co., No. 1:09-CV-3412, 2010 U.S. Dist. LEXIS 151074 (N.D.Ga. July 29, 2010); N. Am. Rescue Prod., Inc. v. Bound Tree Med., LLC, No. 2:08-cv-101, 2009 U.S. Dist. LEXIS 118316, 2009 WL 4110889 (S.D. Ohio Nov. 19, 2009); In re Am. Kidney Fund, Inc., No. TDC-17-1787, 2019 U.S. Dist. LEXIS 72090, 2019 WL 1894248 (D. Md. Apr. 29, 2019). Relevant factors include "relevance, the need of the party for the documents, the breadth of the document request, the time period covered by it, the particularity with which the documents are described and the burden imposed." In re Modern Plastics Corp., 890 F.3d 244, 251 (6th Cir. 2018) (internal quotation marks and citations omitted). Other considerations may include whether the subpoena was issued "in bad faith, for an improper purpose, or in a manner inconsistent with existing law." Legal Voice v. Stormans, Inc., 738 F.3d 1178, 1185 (9th Cir. 2013). Several courts have considered whether the party serving the subpoena engaged in good faith negotiations to resolve conflicts and to avoid imposing an undue burden. Tiberi v. CIGNA Ins. Co., 40 F.3d 110, 112 (5th Cir. 1994); Goldberg v. Amgen, Inc., 123 F.Supp.3d 9, 23 (D.D.C. 2015); In re Am. Kidney Fund, Inc., No. TDC-17-1787, 2019 U.S. Dist. LEXIS 72090, 2019 WL 1894248 (D. Md. Apr. 29, 2019).
Considering the facts of these cases, we will deny JLL's request for attorney's fees. We strongly weigh the facts that petitioners proactively clarified their requests by letter dated August 15, 2023, and narrowed the subpoena by letter dated September 8, 2023. We also consider the fact that JLL did not clearly state that it had no responsive documents for several months. Instead, JLL was coy about its possession of responsive documents, and it (and respondent) made arguments and statements that petitioners could take to mean that JLL had responsive documents in its possession.
Although we deny JLL's request for attorney's fees, we have significant concerns with petitioners' subpoenas, as we expressed to the parties during the September 19, 2023, conference call and the October 11, 2023, hearing. We caution practitioners before this court that the use of subpoenas as a substitute for discovery is not favored. It is not lost on us that petitioners issued subpoenas to three parties known to act as expert witnesses for respondent in cases involving syndicated conservation easements. There is a high likelihood that future use of such subpoenas (especially those involving frequent expert witnesses) as an end run around the Tax Court's discovery rules will result in sanctions against that practitioner. The Court will not tolerate intimidation and harassment of potential expert witnesses by quietly watching these tactics become commonplace.
We also advise practitioners before this court to avoid unclear requests in subpoenas that could reasonably be interpreted as being extremely broad. The dispute over the subpoenas issued to JLL and the other two third parties may have been avoided, or resolved significantly faster, had petitioners issued more precise subpoenas to begin with. Instead, the imprecise subpoenas appear to have contributed to JLL's initial motion to quash (and did contribute to respondent's motion to quash), which led petitioners to suspect that JLL and the other third parties had responsive documents in their possession.
For the reasons stated above, it is
ORDERED that Nonparty Jones Lang LaSalle Incorporated's Motion to Quash or Modify Subpoena Petitioner's Nonparty Subpoena is denied to the extent it requests sanctions against petitioners pursuant to Tax Court Rule 147(d)(1). It is further
ORDERED that in addition to the usual service upon the parties, the Clerk of the Court is directed to serve a copy of this Order on: Stephen D. D. Hamilton at Faegre Drinker Biddle & Reath, LLP, One Logan Square, Suite 2000, Philadelphia, PA, 19103 and Brett A. Seifried at Faegre Drinker Biddle & Reath, LLP 1500 K Street NW, Suite 500, Washington, D.C., 20005.