Opinion
23018-18 23019-18
05-31-2022
ANADARKO PETROLEUM CORPORATION, ET AL., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth A. Copeland, Judge
These consolidated cases were set for Trial on July 11, 2022, but were continued with jurisdiction retained by this Division of the Court. They will be set for trial in Washington, D.C. in May of 2023. On May 6, 2022, the parties and the Court conducted a Zoom conference ("Zoom Call") where all responsive deadlines and discovery issues were discussed. In this Order, we address Respondent's motions related to two of Petitioners' seven expert reports-those of Dr. David L. Sunding and Dr. Neil M. Ram-more specifically we address the following motions and responses:
(1) Respondent's Motion for Leave to Serve Discovery Relating to Expert Reports, filed on March 7, 2022 (Index No. 162);
(2) Petitioners' Response to Respondent's Motion for Leave to Serve Discovery Relating to Expert Reports, filed on April 14, 2022 (Index No. 179);
(3) Respondent's Motion for Leave to Serve Additional Interrogatories, filed on March 7, 2022 (Index No. 163);
(4) Petitioners' Response to Respondent's Motion for Leave to Serve Additional Interrogatories, filed on April 14, 2022 (Index No. 180);
(5) Respondent's Motion to Take a Deposition of an Expert Witness Pursuant to T.C. Rule 74(c)(4) (David L. Sunding, Ph.D.), filed on April 25, 2022 (Index No. 186);
(6) Respondent's Motion to Take a Deposition of an Expert Witness Pursuant to T.C. Rule 74(c)(4) (Dr. Neil M. Ram), filed on April 25, 2022 (Index No. 187);
(7) Petitioners' Response to Respondent's Motion to Take a Deposition of an Expert Witness Pursuant to T.C. Rule 74(c)(4) (David L. Sunding, Ph.D.), filed on May 11, 2022 (Index No. 215); and
(8) Petitioners' Response to Respondent's Motion to Take a Deposition of an Expert Witness Pursuant to T.C. Rule 74(c)(4) (Dr. Neil M. Ram), filed on May 11, 2022 (Index No. 216).
Note that index numbers in this Order, unless otherwise specified, relate to the docket record in the lead case (i.e., Docket No. 23018-18). For example, Respondent's Motion for Leave to Conduct Discovery Pursuant to Rule 70(a)(2) can be found in the docket record as Index No. 162 in Docket No. 23018-18, but as Index No. 157 in Docket No. 23019-18.
All Rule references are to the Tax Court Rules of Practice and Procedure.
Although the most recent pre-trial scheduling order (Index No. 145) set the deadline to issue discovery in this case at November 18, 2021, and the deadline to compel responses to discovery requests at February 14, 2022, on May 12, 2022, we issued an Order granting Respondent's motion to continue the trial date and placed all current deadlines in that pretrial scheduling order in abeyance (Index No. 218). Regardless, we will address Respondent's motions outlined above as they are relevant to the development of this case for trial.
Central to this case are adjustments in the Notice of Deficiency made to Petitioners' Forms 1120 for tax years 2004 through 2006. Those adjustments relate to the deductibility of a $5.15 billion payment, which was paid on January 23, 2015, to the Anadarko Litigation Trust pursuant to the settlement agreement effective on April 3, 2014 ("2014 Settlement Agreement"), settling the adversary proceeding in the prior bankruptcy case: Tronox Inc. v. Anadarko Petroleum Corp. (In re Tronox Inc.), Ch. 11 Case No. 09-10156 (ALG), Adv. No. 09-01198 (S.D.N.Y. Dec. 5, 2014) ("Adversary Proceeding").
On February 22, 2022, the parties exchanged expert witness reports; and on February 28, 2022, the parties exchanged the workpapers for those reports. Respondent argues we should grant his motion for additional discovery related to Petitioners' two expert reports because: (1) Respondent was unfairly surprised by the use of 2021 information relied upon by Petitioners' experts to prepare their reports despite the timeframe of the issues in this case-2004 through 2006 and 2014; (2) Petitioners' experts relied upon information requested during informal discovery; but, according to Respondent, certain information was not provided or was deemed irrelevant, including Dr. Ram's workpapers used to prepare his 2011 expert reports in the Adversary Proceeding; and (3) Dr. Ram created ambiguity in his expert report by referring to sites as "Kerr-McGee sites" rather than "Old Kerr-McGee (Tronox) sites" or "New Kerr McGee (Petitioners) sites." Respondent also requests that he be allowed to depose the two named experts.
We will take Respondent's motions in order.
Motion for Leave to Serve Discovery Relating to Expert Reports
Respondent's motion equates to a request to allow him to file a sixth formal request for production of documents. The first five requests are being addressed in a separate order of this Court. Given that the trial date in this matter is being moved to May of 2023, and all discovery deadlines were held in abeyance, Respondent's motion is moot and is better addressed through a revised pre-trial scheduling order that the parties are currently working on presenting to the Court.
Regardless, we take this opportunity to comment on the expansive scope of the proposed discovery (cloaked as discovery tailored to the two subject expert reports). To that end, only the documents responsive to requests Nos. 126 through 130 are so tailored. The requests numbered as 87 through 125 and 131 through 133 are much more expansive (in fact, requests 87 through 109 do not contain end dates for documents responsive to those requests, making them continuously subject to supplementation by Petitioners). As such, we admonish the parties to work together to narrow the requests and exchange relevant documents informally.
Requests 134 through 140 relate to the interrogatory request that we address separately.
While we are denying Respondent's motion at this time, we note that the scope of discovery in a case before this Court is broad. "The information or response sought through discovery may concern any matter not privileged and which is relevant to the subject matter involved in the pending case." Rule 70(b).
Motion for Leave to Serve Additional Interrogatories
Rule 71(a), limits the number of interrogatories a party may serve on any other party to no more than 25 written interrogatories (including all discrete subparts) and requires leave of the Court to allow more than 25. In this case, Respondent has already made 20 requests with 25 discrete parts. He has thus filed a motion for additional interrogatories, namely requests Nos. 21 through 29, as attached to his motion. As with the requests for additional document production, these interrogatory requests are expansive in scope and need to be tailored to include an end date (such as the date of the issuance of the Ram Tax Court Report, defined below), so as to limit the requests to relevant inquiries.
The key fact here is that the stakes in this case exceed $850 million and the Court is inclined to allow adequate inquiry into relevant matters that would assist in developing the case for trial. The requested interrogatories are seemly relevant, but overly broad and certain of the requests appear to be duplicative of prior requests, namely proposed interrogatory No. 27 and perhaps interrogatories 22 through 26. Because of these defects, we will deny Respondent's request at this time without prejudice for him to correct the errors noted and renew his motion.
Motion[s] to Take a Deposition of an Expert Witness[es] Pursuant to T.C. Rule 74(c)(4)
Respondent has also requested that the Court allow him to depose two of Petitioners' experts, Dr. David L. Sunding (on June 1, 2022 at 10:00 a.m.) and Dr. Neil M. Ram (on June 6, 2022 at 10:00 a.m.). In both instances Respondent has indicated that the experts are not available for the date and time requested, but that the parties would work toward a mutually agreeable date should this Court grant Respondent's motions.
Our Court allows depositions of experts, but still treats them as "an extraordinary method of discovery." Rule 74(c)(1)(B). What this Division of the Court looks for in considering motions to depose is the general state of discovery, the stakes involved, and whether the depositions would materially aid the trial and possible settlement of the consolidated cases.
The key fact here is that the stakes in this case involve a proposed deficiency that exceeds $850 million. The Court acknowledges the parties' disagreements about how cooperative each has been in informal discovery, but in a case of this size there is bound to be toing-and-froing between two highly qualified teams of lawyers.
Petitioners opened the door to inquiry by submitting expert reports dependent on data and information outside the audit period and the $5.15 billion 2014 Settlement payment. The Expert Report of Dr. Neil M. Ram ("Ram Tax Court Report") includes at least four changes to the original report provided in the Adversary Proceeding ("Original Ram Report"): (1) the Ram Tax Court Report extends costs to the effective date of the 2014 Settlement Agreement; (2) the Ram Tax Court Report includes 13 additional Kerr-McGee sites not included or not valued in the Original Ram Report; (3) while Dr. Ram claims to have used the same methodology, he updated costs for inflation and applied a different discount rate; and (4) Dr. Ram relied "upon facts, information, and data presented through July 31, 2021" to prepare his report. The Ram Tax Court Report at pgs. 6-7 and 19.
Respondent supports his motions arguing that (1) despite numerous requests, Petitioners failed to provide Dr. Ram's complete workpapers for his Original Ram Report provided in the Adversary Proceeding on which both experts rely to form the basis of their opinions;(2) both experts use confusing language making it difficult to distinguish between environmental contamination, environmental remediation, and natural resource damages; (3) both experts' reasoning and methodology are unclear and should be tested; and (4) the depositions will conserve judicial resources by cutting down trial time.
Based on Dr. Ram's Report in this matter, we cannot ascertain whether he provided all workpapers relied upon in his original 2011 expert report prepared for the Adversary Proceeding, which Dr. Ram and Dr. Sunding both reference and rely upon in their expert reports prepared for this matter. Dr. Sunding's Report at Appendix B pgs. 8-9; Dr. Ram's Report at Materials Relied Upon pgs. 45-47.
Petitioners oppose these motions to depose their expert witnesses, arguing that no extraordinary circumstances exist to grant such motions.
Pursuant to Rules 70(a) and 74(c)(1)(B), Respondent attempted to resolve his deposition and other discovery requests informally, but Petitioners denied the requests. "The purpose of discovery in the Tax Court is to ascertain facts which have a direct bearing on the issues before the Court." Ash v. Commissioner, 96 T.C. 459, 463 (1991) (citing Penn-Field Indus. v. Commissioner, 74 T.C. 720, 722 (1980)). Only after Respondent makes a reasonable effort to obtain the information or interviews voluntarily may he use discovery procedures like formal depositions. Id. (citing Rule 70(a)(1) and Branerton Corp. v. Commissioner, 61 T.C. 691 (1974)). Rule 74(c)(1)(B) provides that the taking of a deposition of an expert witness is an extraordinary method of discovery, which means a compelling basis must exist. See K&M La Botica Pharmacy, Inc. v. Commissioner, T.C. Memo. 2011-33, 81 T.CM. (CCH) 1147, 1148 ("Rule 75 [the prior rule for nonparty depositions] does not sanction 'fishing expeditions.'"). But such depositions may be utilized when the testimony sought is relevant and not privileged and "cannot be obtained through informal consultation or communication." Rules 70(b) and 74(c)(1)(B). Here the deductibility of the $5.15 billion payment is central to the parties' dispute, and we agree that Respondent should be able to conduct discovery, including taking the depositions of key experts.
It is reasonable to lock down key underlying facts from the expert reports and better focus on what are likely to be quite complicated valuations of environmental exposure that Petitioners rely on as a basis for the deductions taken on the returns at issue in this case. Furthermore, because we have continued the trial and because Respondent cannot obtain the information he seeks through other means (as Petitioners continue to state that they have no other records or information to provide) we will grant Respondent's motions to depose Dr. David L. Sunding and Dr. Neil M. Ram. We find Respondent's motions to be reasonable, and the marginal costs for the depositions are small in relation to the stakes in this case.
Upon due consideration, it is
ORDERED that Respondent's Motion for Leave to Conduct Discovery Pursuant to Rule 70(a)(2), filed on March 7, 2022 (Index No. 162), denied as moot for the reasons set forth above. It is further
ORDERED that Respondent's Motion for Leave to Serve Additional Interrogatories, filed on April 14, 2022 (Index No. 163), is denied without prejudice to refile. It is further
ORDERED that Respondent's Motion to Take a Deposition of an Expert Witness Pursuant to T.C. Rule 74(c)(4) (David L. Sunding, Ph.D.), filed on April 25, 2022 (Index No. 186), is granted. It is further
ORDERED that Respondent's Motion to Take a Deposition of an Expert Witness Pursuant to T.C. Rule 74(c)(4) (Dr. Neil M. Ram), filed on April 25, 2022 (Index No.187), is granted. It is further
ORDERED that the parties and the expert witnesses shall endeavor to reach agreement on the dates, times, and places of the depositions; and, in the event such agreement is not reached, Respondent shall file by July 11, 2022, motions to compel the depositions suggesting specific dates, times, and places for the depositions.
The Clerk of the Court is directed to provide additional service of this Order to:
Dr. David L. Sunding 207 Giannini Hall, MC3310 University of California Berkley, CA 94720 8 Dr. Neil R. Ram 41 Hemlock Street Needham, Massachusetts 02492