Free Memorandum - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

HINSHAW & CULBERTSON LLP
Suite 1600 3800 North Central Avenue Phoenix, Arizona 85012-1946 (602) 631-4400 (602) 631-4404 (fax)

Law Offices

Darrell S. Dudzik (016465) [email protected] Attorneys for Defendants UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Ronald Craig Fish, a law corporation, a California corporation, Plaintiff, vs. Thomas G. Watkins, III, an individual, et al., Defendants. ) ) ) ) ) ) ) ) ) ) ) ) )

No. CIV-03-67-PHX-SMM BRIEF IN SUPPORT OF PRODUCTION OF TAX RETURNS

Defendant Thomas G. Watkins hereby moves this Court to compel Plaintiff to comply with his Request for Production as required by Rule 34 of the Federal Rules of Civil Procedure. DATED this 9th day of December, 2005. HINSHAW & CULBERTSON LLP

By /s/ Darrell S. Dudzik Darrell S. Dudzik Attorneys for Defendants

Case 2:03-cv-00067-SMM

Document 105

Filed 12/09/2005

Page 1 of 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

MEMORANDUM OF POINTS AND AUTHORITIES Production of the Tax Returns Plaintiff, a law corporation, is claiming as damage all time spent in defense of the underlying law suit at a set billable rate that it has decided. full rate is recoverable Plaintiff states that the consideration of any

without

associated business deductions. Without waiving the issue as to Plaintiff s entitlement to such fees, Defendants wish to determine whether the hourly rate an accurate and representation more of the what law corporations cost are

hourly

rate

importantly,

overhead

associated with Plaintiff s fees. Ronald Fish has testified items that

Plaintiff s sole the overhead luxury cost

employee for and the an

business airplane.

includes

such

as

two

cars

Defendants believe that any claim for lost profits,

by definition must consider the corporation s income reduced by the associated overhead expenses. Before discussing applicable case law the Defendants note that this Court entered a Protective Order on May 13, 2005 which was designed to protect the privacy issues related to personal or business information information. production of and confidential financial

The Protective Order specifically foresees the these documents under the designation of

CONFIDENTIAL. documents include

By definition in the order

CONFIDENTIAL and the

confidential financial information

use and disclosure of such documents is limited by the Order. 2
Case 2:03-cv-00067-SMM Document 105 Filed 12/09/2005 Page 2 of 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Therefore, any claim that production under the designation founded. would be a public disclosure

CONFIDENTIAL would be ill-

Despite the Court having addressed and facilitated the production in the Protective Order has refused production but nonetheless arbitrary claims entitlement hourly to pecuniary damages at an the

designated

rate.

Plaintiff

denies

Defendants an opportunity to dispute the amount or veracity of the pecuniary damage based on actual financial performance. Defendants arguably may be able to prove that even given

Plaintiff s claim of additional work; the law corporation may not have generated any profit whatsoever. Absent production

of tax records Defendants has no ability to test the claim There is no privilege prohibiting the discovery of tax returns under federal law. Heathman v. U.S. Dist. Ct., 503

F.2d 1032, 1034-1035 (9th Cir. 1974); see also Davis v. Leal, 43 F.Supp.2d 1102, 1109 (E.D. Cal. 1999). no merit to any contentions that the Further, there is discovery of tax

returns violates any rights to privacy.

Id. at 1035, citing

Couch v. United States, 409 U.S. 322, 93 S.Ct. 611, 34 L.Ed.2d 548 (1973). Additionally, there is no statutory or common law

in Arizona prohibiting the discovery of tax returns for either reason. California is a part of the small minority of states

which have a statute creating some form of privilege against the discovery of tax returns, but there are no legal theories under which this Court should apply California law. 3
Case 2:03-cv-00067-SMM Document 105 Filed 12/09/2005 Page 3 of 5

Thus, the

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

tax returns at question in this case are discoverable subject to the rules regarding discovery in general. Defendants acknowledge that the Ninth Circuit recognizes a public policy against the unnecessary public disclosure of tax returns. Premium Serv. Corp. v Sperry & Hutchison Co., However, as noted above, this the concern about public 511 F.2d 225 (9th Cir, 1975). Court has already addressed

disclosure in its Protective Order.

The documents produced

will be protected as envisioned by this Court. Plaintiff s groundless in objection law. regarding Plaintiff s relevance own is equally claims

the

complaint

damages for lost income, thus rendering the discovery of his tax returns directly relevant. See Martinez v. Jordan, 27

Ariz.App.254, 553 P.2d 1239 (1976) (holding that tax returns are relevant to a claim for loss of income). In order to

determine whether he actually lost any income at all it is necessary to review the tax returns. Plaintiff has inferred

that production of only his time sheets for the years in question will produce the same information. Time sheets,

however, while noting hours spent working on particular files, do not include any information regarding overall profitability or the various components thereof, such as overhead costs, billing rates, income actually received, etc. Without review

of the tax returns, the Defendants and this Court are left with only the Plaintiff s word regarding damages. Therefore, this Court should compel Plaintiff to produce 4
Case 2:03-cv-00067-SMM Document 105 Filed 12/09/2005 Page 4 of 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

the requested tax returns. DATED this 9th day of December, 2005. HINSHAW & CULBERTSON LLP

By /s/Darrell S. Dudzik Darrell S. Dudzik Attorneys for Defendants CERTIFICATE OF SERVICE I certify that on the 9th day of December, 2005, I electronically transmitted the attached document to the Clerk s Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Robert Hardy Falk, Esq. Robert Hardy Falk, P.C. Post Office Box 794748 Dallas, Texas 75379 Attorney for Plaintiff [email protected] Michael G. Ackerman, Esq. ACKERMAN, KEVORIKIAN & MASH 2391 The Alameda Suite 100 Santa Clara, CA 95050 Co-counsel for Plaintiff [email protected] I hereby certify that on the 9th day of December, 2005, I served the attached document by mail on the following, who is not a registered participant of the CM/ECF System:

By

/s/ Darrell S. Dudzik

5
Case 2:03-cv-00067-SMM Document 105 Filed 12/09/2005 Page 5 of23019132v1 5
827165