Opinion
CASE NO. C18-0302-JCC
04-16-2020
INTERNATIONAL NEWS, INC., Plaintiff, v. 10 DEEP CLOTHING, INC., Defendant.
ORDER
This matter comes before the Court on Plaintiff International News Inc.'s motion to compel Defendant 10 Deep Clothing Inc. to disclose documents relating to Defendant's tax returns, financial documents, and profits and costs relating to web sales (Dkt. No. 70). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby GRANTS in part and DENIES in part the motion for the reasons explained herein.
I. BACKGROUND
The Court set forth the underlying facts of this case in a previous order and will not repeat them here. (See Dkt. No. 46.) Plaintiff moves for an order compelling Defendant to disclose its financial documents, documents associated with its web sales, and tax returns from 2007 to 2017 in response to Plaintiff's discovery requests. (See generally Dkt. No. 70.) Plaintiff asserts that the documents it seeks are relevant to its claims for unjust enrichment and promissory estoppel claims. (Dkt. No. 83 at 3-4.) Relying on the testimony of Defendant's accountant, Cory Vernoia, Plaintiff states that these documents will definitively show the total amount owed to Plaintiff and at issue in this litigation. (Dkt. No. 70 at 2.) On January 30, 2020, the parties met via telephonic conferences and were unable to resolve their dispute. (Id. at 5.) Plaintiff subsequently filed the instant motion. (Id. at 1.)
II. DISCUSSION
In general, "[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case." Fed. R. Civ. P. 26(b)(1). In addressing the proportionality of discovery, the court considers "the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit." Surfvivor Media, Inc. v. Survivor Prods., 406 F.3d 625, 635 (9th Cir. 2005). If requested discovery is not answered, the requesting party may move for an order compelling such discovery. Fed. R. Civ. P. 37(a)(1). The court has broad discretion to decide whether to compel disclosure of discovery. Phillips ex rel. Estates of Byrd v. General Motors Corp., 307 F.3d 1206, 1211 (9th Cir. 2002). The Ninth Circuit has held that there are "liberal discovery principles" under the Federal Rules and that defendants thus carry a "heavy burden of showing" why a request for discovery should be denied. Blankenship v. Hearst Corp., 519 F. 2d 418, 429 (9th Cir. 1975).
Relevant information for purposes of discovery is information "reasonably calculated to lead to the discovery of admissible evidence." Surfvivor Media, Inc., 406 F.3d at 635 (quoting Brown Bag Software v. Symantac Corp., 960 F.2d 1465, 1470 (9th Cir. 1992)). This is "an intentionally broad mandate." Brown Bag Software, 960 F.2d at 1470. Accordingly, district courts possess broad discretion "in determining relevancy for discovery purposes." Surfvivor Media, Inc., 406 F.3d at 635.
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A. Financial Documents
Plaintiff moves to compel disclosure of Defendant's financial documents from 2007 to 2017. The relevance of Defendant's financial documents to Plaintiff's claims is clear. Plaintiff's claims for unjust enrichment and promissory estoppel are based on Defendant's alleged violation of its financial obligations under various agreements and the parties' relationship spanning from 2007 to 2017. As such, financial documents allegedly illustrating this relationship are central to this case and thus meet the low threshold of relevance.
Plaintiff acknowledges that Defendant has provided financial statements from 2011 to 2013 but argues that Defendant has failed to produce the corresponding documents from 2007 to 2010 and from 2014 to 2017. (Dkt. No. 70 at 3-4.) In response, Defendant asserts that it no longer possesses financial documents for 2007 to 2010 but states that it will send Plaintiff the requested financial documents for 2014 to 2017. (See Dkt. Nos. 78 at 9, 80 at 2.) The Court finds the Defendant has adequately disclosed its financial documents for the years 2011 to 2013 and that the Defendant cannot disclose the documents from 2007 to 2010. Thus, Plaintiff's motion to compel is GRANTED as to Defendant's financial documents for the years 2014 to 2017 and DENIED as to Defendant's financial documents for the years 2007 to 2013.
Plaintiff briefly requests copies of Defendant's financial documents for 2011 to 2013 with Defendant's notes and comments on them, but Defendant has established that no such copies exist. (Dkt. No. 78 at 9.) --------
B. Web Sale Documents
Defendants asserts that documents relating to the "costs, payments and profits associated with its web sales" are "wholly irrelevant to the present dispute." (Dkt. No. 78 at 9.) But Defendant's records pertaining to its web sales are relevant to Plaintiff's claims and therefore the documents must be disclosed in response to Plaintiff's discovery requests.
Plaintiff states that it seeks all documents relating to Defendant's web sales during the parties' ten-year relationship. (Dkt. No. 83 at 7.) It is uncontested that Defendant "ran a web business, and that [Plaintiff] supplied the product which was sold." (Dkt. No. 70 at 4.) The costs and profits associated with Defendant's business are relevant to Plaintiff's unjust enrichment claim because they show how Defendant's funds are received and dispersed. Given that discovery is intentionally a broad mandate for the purpose of uncovering sources of information that can lead to admissible evidence, Plaintiff has met its burden of showing the relevance of the sought documents and Defendant has not met its burden of showing that such information is not relevant. Therefore, Plaintiff's motion to compel is GRANTED on this ground.
C. Tax Returns
In general, "[t]ax returns do not enjoy an absolute privilege from discovery." Premium Service Corp. v. Sperry and Hutchinson Co., 511 F.2d 225, 229 (9th Cir. 1975). Specifically, "tax returns held by the government are confidential under federal law, but copies retained by the taxpayer are subject to discovery." St. Regis Paper Co. v. U.S., 368 U.S. 208, 218-19 (1961). However, the Ninth Circuit recognizes that unnecessary public disclosure of tax returns must be limited to "encourage taxpayers to file complete and accurate returns." Aliotti v. Vessel SENORA, 217 F.R.D. 496, 497 (N.D. Cal. 2003) (quoting Premium Service Corp., 511 F.2d at 229). In the Western District of Washington, courts have applied a two-part test to determine if a party's tax returns should be disclosed: "the Court may only order the production of [a party's] tax returns if they are relevant and when there is a compelling need for them because the information sought is not otherwise available." Id.; see, e.g., Alaskan Anvil, LLC v. Majestik Fisheries, Case No. C13-5702 BJR, Dkt. No. 25 at 2 (W.D. Wash. 2014) (denying plaintiff's request for production of the defendant's tax returns because the plaintiff's claims did not depend on information contained in the tax returns and plaintiff did not demonstrate a "compelling need" for the information in the returns).
Plaintiff seeks to compel Defendant to provide its tax returns for the years 2007 to 2017. In response, Defendant states that its tax returns are not relevant to the current litigation, and that Plaintiff can glean the information sought from the tax returns from other documents in the record. (Dkt. No. 78 at 8).
In this case, Defendant's tax returns are relevant to Plaintiff's claims. Plaintiff seeks the returns to support its claims of unjust enrichment and promissory estoppel, as well as its breach of contract claim should it not succeed on its pending motion for partial summary judgment. (Dkt. No. 83 at 3-4.) As many of the cases cited by Defendant reflect, taxes are an opportunity for the taxpayer to honestly and truthfully reflect their financial situation. See e.g., Premium Service Corp., 511 F.2d at 299. The tax returns can provide evidence as to whether Defendant viewed the balance as a liability or negative asset or not, which bears directly on Plaintiff's unjust enrichment claim. (Id. at 3.) Therefore, the tax returns are relevant. See Premium Service Corp., 511 F.2d at 299; Alaskan Anvil, LLC, Case No. C13-5702 BJR, Dkt. No. 25 at 2.
As the tax returns are relevant to Plaintiff's claims, the Court now examines whether Plaintiff has established a compelling need for Defendant's tax returns. Defendant claims that its other records showing its debt to Plaintiff carry "no substantive meaning." (Dkt. No. 83 at 4.) But Defendant's accountant has testified that the Defendant's tax returns should definitively show this debt as a negative asset. (Id. at 4-5.) Given Defendant's minimization of its own records and the testimony of Defendant's accountant, Defendant's tax returns are the most viable evidence that allow Plaintiff to support its claims. Thus, Plaintiff has clearly identified a compelling need for the returns since the set of facts that Plaintiff hopes to prove from the information contained therein cannot be derived from another source. See Premium Service Corp., 511 F.2d at 299; Alaskan Anvil, LLC, Case No. C13-5702 BJR, Dkt. No. 25 at 2. Therefore, Plaintiff's motion to compel is GRANTED on this ground.
III. CONCLUSION
For the foregoing reasons, Plaintiff's motion to compel (Dkt. No. 70) is GRANTED in part and DENIED in part as follows:
1. Plaintiff's motion to compel is GRANTED as to Defendant's tax returns for 2007 to 2017, documents pertaining to the profits and costs of Defendant's web sales for 2007 to
2017, and Defendant's other financial documents for 2014 to 2017.
2. Plaintiff's motion to compel is DENIED as to Defendant's financial documents from 2007 to 2013.
3. Plaintiff's request to redepose Defendant's CEO Scott Sasso (Dkt. No. 70 at 6) is DENIED at this time.
DATED this 16th day of April.
/s/_________
John C. Coughenour
UNITED STATES DISTRICT JUDGE