Opinion
24703-21
06-24-2024
NORTH DONALD LA PROPERTY, LLC, NORTH DONALD LA INVESTORS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber, Judge.
This case is calendared for trial at an initial session of the Court beginning September 9, 2024, and a second session beginning October 7, 2024, both in New Orleans, Louisiana. The case involves a charitable contribution deduction claimed by North Donald LA Property, LLC (North Donald), for a conservation easement. The IRS also determined a civil fraud penalty under section 6663.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
Background
RESPEC Company, LLC (RESPEC), is a large international company that provides private and governmental entities with "integrated technology solutions and consulting for mining, minerals, and energy." Edmundo Laporte, a former employee of RESPEC, prepared the clay mining feasibility study (Laporte Study) used in determining the value of the conservation easement granted by North Donald.
On January 15, 2024, respondent issued RESPEC a subpoena duces tecum that sought information relating to the transaction at issue. Respondent's subpoena covered numerous categories of documents and communications involving roughly 40 individuals and entities connected to this case. In response to the subpoena, RESPEC produced 648 documents consisting of approximately 4,167 pages. Respondent forwarded all of RESPEC's production to petitioner.
On May 13, 2024, after receiving RESPEC's production, petitioner served its own subpoena on RESPEC, seeking production of four categories of materials. Among the materials sought are any documents and correspondence that were previously exchanged between RESPEC and the "United States Government." The subpoena defines "United States Government" to include the "Internal Revenue Service, Department of Treasury, and Department of Justice" (DOJ). The scope of the request covers all materials created since May 5, 2020, the date on which the IRS commenced the examination of North Donald. The scope is limited to materials relating to specified persons, entities, or locales directly connected to the transaction at issue.
The subpoena also seeks "all contracts with the DOJ, Department of Defense, United States Army, National Park Service, and the United States Environmental Protection Agency" from 2014 through 2018, "all reports relating to the mining of clay that were prepared by RESPEC" from 2014 through 2018, and "all documents relating to resource and reserve estimates, mining engineering, or permitting, of clay" prepared from 2014 through 2018. RESPEC represents that petitioner, in subsequent discussions with RESPEC's counsel, has since narrowed these requests in two respects: (1) it now seeks only a list of the contracts between RESPEC and the specified U.S. Government agencies; and (2) it now seeks only those "reports relating to the mining of clay" that Mr. Laporte considered or relied on in preparing his feasibility study for North Donald.
On May 30, 2024, RESPEC filed a Motion to Quash or Modify the Subpoena. It requests that the Court quash the subpoena on the ground that the materials requested by petitioner were already produced to respondent (and thereafter shared with petitioner) pursuant to the IRS subpoena, or that the materials requested are not relevant to the subject matter of this case. On June 17, 2024, petitioner filed a Response opposing the Motion. Petitioner contends that the subpoenaed documents will establish "RESPEC's expertise and experience, which is relevant to North Donald's reliance on RESPEC," and that the subpoenaed materials may support "the credibility of the assumptions and data" appearing in the Laporte Study. Petitioner has informed RESPEC that it need not reproduce any documents it produced previously. The case is calendared for a remote hearing on June 26, 2024, which operates as the return date for the subpoena.
Around the time that petitioner issued its subpoena to RESPEC, petitioner also issued subpoenas to 16 other non-party individuals and entities. On May 16, 2024, respondent filed Motions to Quash or Modify all 17 subpoenas. By Order served June 17, 2024, we denied those Motions, determining that respondent lacked standing and/or that the information sought could be relevant to the issues in this case. Of the 17 non-parties to which petitioner issued subpoenas, only RESPEC filed a motion to quash.
Discussion
Rule 147(d)(3)(iii) states that "the Court must quash or modify a subpoena that . . . subjects a person to undue burden," meaning a burden that outweighs the value of the subpoenaed information to the serving party. See Amazon.Com, Inc. & Subs. v. Commissioner, T.C. Memo. 2014-245, 108 T.C.M. (CCH) 245, 253-54. Factors to be considered include the relevance of the information sought, the serving party's need for that information, the breadth of the request, the time period covered by the subpoena, the particularity of the request, and the burden imposed. Id. at 253. For purposes of discovery the standard of relevance is liberal: our Rules generally permit discovery of any material relevant "to the entire 'subject matter' of the case." Zaentz v. Commissioner, 73 T.C. 469, 471 (1979) (quoting Rule 70(b)). But a more "demanding and sensitive" inquiry may be necessary for discovery that involves non-parties. Va. Dep't of Corrections v. Jordan, 921 F.3d 180, 189 (4th Cir. 2019) (citing Weinam v. Cable, 427 F.3d 49 (1st Cir. 2005); see also Castleberry v. Camden Cnty., 331 F.R.D. 559, 563 (S.D. Ga. 2019) (stating that a stronger showing of relevance is needed for non-party discovery).
RESPEC objects to producing each category of materials sought by petitioner. Regarding the request that it produce all contracts with U.S. Government agencies between 2014 and 2018, RESPEC represents that it has been involved as either a prime contractor or subtractor on dozens if not hundreds of such contracts during this period. It contends that these contracts are irrelevant because "none of the[m] in-volve[s] clay mining or conservation easements." RESPEC represents that many of the contracts involve sensitive and confidential information, such that disclosing them might impose significant burden on RESPEC and/or its clients. Petitioner has since narrowed its request to seek only a list of RESPEC's U.S. Government contracts, which petitioner contends would help demonstrate RESPEC's "reliability and expertise." We fail to see how a list of contracts with sundry entities could have any relevance to the disputed issues in this case. To the extent petitioner wishes to establish RESPEC's expertise and commercial bona fides, it has other, less burdensome ways of doing this.
Petitioner also requested from RESPEC "documents relating to resource and reserve estimates, mining engineering, or permitting, of clay" prepared during 2014-2018 and "reports relating to the mining of clay that were prepared by RESPEC" during 2014-2018. Petitioner has since narrowed its request to involve only "documents upon which Mr. Laporte purportedly relied when creating his late 2017/early 2018 feasibility report for petitioner." Petitioner seeks these materials to demonstrate "the credibility of the assumptions and data" in the Laporte Study.
Petitioner alleges that "the data found in RESPEC's [January 2024] subpoena production confirm[] that [Mr. Laporte] utilized other sources to prepare" his Study, besides the documents that were "included in the 648 documents [that] RESPEC produced." Petitioner then specifies individuals and entities that allegedly supplied RESPEC with "historical clay pricing data," for which petitioner now seeks "the source material." Petitioner believes that this pricing material may bolster "the credibility of the assumptions and data" in the Laporte Study. RESPEC calls this request "overbroad" and the materials sought "irrelevant."
We are not sure the request is irrelevant, but it is tricky. RESPEC has already produced all documents from its files relating to North Donald and the related entities involved in this case. Of course, Mr. Laporte or his assistants may have relied on other documents or information that did not find their way into his files. But RESPEC as an entity could not know what other information Mr. Laporte may have relied on; it knows only what appears in the files relevant to the North Donald representation. RESPEC cannot read its former employee's mind.
That said, it seems plausible to us that Mr. Laporte-and more particularly his staff-may have relied on generic mining data in RESPEC's possession that may have been used in more than one report about clay mining. Petitioner has stated that it "is amenable to narrowing the scope of [the] requested reports to the areas surrounding the North Donald Property or to a narrower region to alleviate any undue burden." Without knowing how many clay mining reports RESPEC has prepared, petitioner acknowledges that "it is difficult to identify an appropriate region that would balance petitioner's need for relevant datapoints while minimizing any undue burden."
We think petitioner has made a reasonable case for production of some clay mining reports. But identifying "an appropriate region" is no easier for the Court. We will accordingly deny the Motion to Quash insofar as petitioner requests other clay mining reports (1) of the general type that Mr. Laporte prepared for North Donald; (2) that RESPEC prepared during the two years preceding the date of the Laporte Study, (3) that concern the feasibility of clay mining in "the areas surrounding the North Donald Property or to a narrower region to alleviate any undue burden"; and (4) that RESPEC has not already produced in response to the IRS subpoena. We hope that petitioner and RESPEC will be able to agree on a scope of production that meets these specifications. If not they may seek further guidance from the Court.
Finally, RESPEC challenges petitioner's request for documents and communications exchanged between it and the "United States Government" since May 2020. RESPEC represents that it has already produced, in compliance with the IRS subpoena, all documents and/or communications between it and the IRS, consisting of four letters from the IRS to RESPEC or Mr. Laporte. According to RESPEC, the letters requested that certain documents be preserved or furnished to the IRS and/or that the recipient of the letter speak with an IRS representative. RESPEC represents that it possesses no other documents or communications exchanged between it and the "United States Government" since May 2020 that involve the specified persons, entities, or locales connected to the transaction at issue. Thus, the only documents and/or communications in RESPEC's possession that address these topics appear to have been produced already as part of RESPEC's 4,617-page production.
In the Motion, RESPEC requests an award of attorneys' fees under Rule 147(d)(1). We find that no such award is warranted at this time.
Upon due consideration, it is
ORDERED that the Motion to Quash or Modify a Subpoena, filed May 30, 2024, at docket entry #179, is granted, except to the extent specified in this Order regarding the production of clay mining reports. It is further
ORDERED that, in addition to regular service, the Clerk of the Court shall serve a copy of this Order on RESPEC as follows:
RESPEC Company, LLC Counsel: Mr. Peter Hardy 1735 Market St., 51st Floor Philadelphia, PA 19103-7599