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Grant, Konvalinka & Harrison, P.C. v. United States

November 10, 2008

GRANT, KONVALINKA & HARRISON, P.C., PLAINTIFF,
v.
UNITED STATES OF AMERICA DEFENDANT.



The opinion of the court was delivered by: Chief Judge Curtis L. Collier

MEMORANDUM & ORDER

In this appeal from a discovery ruling, Plaintiff Grant, Konvalinka & Harrison contends Magistrate Judge William B. Mitchell Carter erred in denying its motion to compel (Court File No. 24). Defendant United States filed a response in opposition (Court File No. 25). For the following reasons, the Court AFFIRMS the Magistrate Judge's decision (Court File No. 21) and DENIES Plaintiff's objection (Court File No. 24).

I. BACKGROUND

A. Relevant Facts

Plaintiff, a law firm, sued the United States seeking a refund and abatement of a penalty issued against it by the Internal Revenue Service. The IRS assessed the penalty because it concluded Plaintiff violated 26 U.S.C. § 6700 by making statements or causing another person to make statements that were false or that the firm should have known were false concerning the tax exempt status of interest earned on certain bonds (the "Bonds").

J.C. Bradford, which issued the Bonds, seven other law firms, and various investors entered into a settlement (the "Closing Agreement") with the IRS in which they agreed to pay the IRS $30,000,000, part of which was a penalty under § 6700. Plaintiff was not a party to the Closing Agreement, and now seeks the Closing Agreement and related information as part of discovery.

B. The Discovery Dispute

Plaintiff asserts the Government must respond to and produce documents in relation to the following discovery requests:

Request for Production 3 ("Request 3"): If not previously produced, produce any and all documents, including, but not limited to, any closing agreements and/or settlement agreements between you or any other person relative to the [Bonds].

Interrogatory 5: Identify all discussions, meetings, agreements, correspondence or communications between you and any person relating to the Closing Agreement or the Settlement Agreement concerning the [Bonds]. (Court File No. 15).

Although Request 3 technically asks for "all documents" possessed by the Government, the Magistrate Judge construed it as seeking only documents constituting settlement communications and the Closing Agreement. For Interrogatory 5, Plaintiff essentially seeks a list of information, similar to a privilege log.

Plaintiff filed a motion to compel Defendant's response to Request 3 and Interrogatory 5 (Court File No. 15). Both parties submitted briefs, and the Magistrate Judge conducted a hearing on the motion before issuing his ruling.

C. The Magistrate Judge's Decision

The Magistrate Judge first considered Interrogatory 5. Although the United States originally raised numerous objections, they were distilled into two: the information is not relevant and disclosure is prohibited by 26 U.S.C. § 6103. In considering relevance, the Magistrate Judge noted that Rule 408 of the Federal Rules of Evidence restricts the admissibility of evidence related to settlements. The Magistrate Judge stated it was not clear how the identification of the information sought could lead to the discovery of evidence admissible for substantive purposes, and he concluded it was not relevant (Court File No. 21, p. 4). The Magistrate Judge, however, noted that Rule 408 allows evidence of settlement negotiations when used to show a witness's bias or prejudice. But the Magistrate Judge held disclosure of the information for that purpose was barred by 26 U.S.C. § 6103, which prohibits the United States from disclosing tax returns and tax return information. The Magistrate Judge rejected ...


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