Opinion
12421-19
06-10-2024
LONGWOOD PRESERVE HOLDINGS, LLC, LONGWOOD PRESERVE INVESTORS, LLC, TAX MATTERS PARTER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Christian N. Weiler Judge
This is a syndicated conservation easement case. On April 17, 2024, respondent filed two Motions to Compel the Taking of Depositions (Motions to Compel Depositions), pursuant to Rule 74(c)(3) seeking to depose Messrs. Martin H. Van Sant and Thomas F. Wingard. On May 13, 2024, counsel for Messrs. Van Sant and Wingard filed Objections to each of respondent's Motions to Compel Depositions. On May 31, 2024, respondent filed Replies to Messrs. Van Sant and Wingard filed Objections.
Unless otherwise indicated, all regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Based on the reasons below we will deny respondent's Motion to Compel the Taking of Deposition of Martin H. Van Sant and reserve ruling on respondent's Motion to Compel the Taking of Deposition of Thomas F. Wingard until Mr. Wingard provides further evidence relating to his current medical condition.
Background
This case involves the donation of a conservation easement on 519.408 acres of property located in Glynn County, Georgia (Subject Property). Among other issues, this case involves several fact-intensive issues, including the value of the conservation easement, whether the appraisal was qualified, and whether the appraisers, Messrs. Van Sant and Wingard, were qualified appraisers.
Messrs. Van Sant and Wingard were the appraisers for the Subject Property. In the Motions to Compel Depositions, respondent asserts that the two deponents hold necessary information to resolve the issues of this case. Messrs. Van Sant and Wingard have not been interviewed or deposed in this case; however, they have been deposed by respondent in Oconee v. Commissioner at Docket No. 11814-19, another conservation easement case before this Court.
On October 27, 2023, respondent served both Messrs. Van Sant and Wingard with a Notice of Deposition of Nonparty and related subpoenas duces tucem for the production of documents related to this case. On or about December 13, 2023, counsel for Messrs. Van Sant and Wingard furnished flash drives containing documents responsive to the subpoena duces tucem requests. Then on January 16, 2024, respondent sent a letter to counsel for Messrs. Van Sant and Wingard detailing respondent's contention that the production of documents made was incomplete, considering the USPAP record keeping rules. A supplemental response was made by counsel for Messrs. Van Sant and Wingard on January 31, 2024.
In the Motions to Compel Depositions, respondent contends how depositions of Messrs. Van Sant and Wingard are warranted since they are the appraisers who prepared the originals appraisal at issue in this case, how the timelines of their work shows they are in possession of relevant information, and said information cannot be obtained by other means of discovery.
On May 13, 2024, counsel for Messrs. Van Sant and Wingard filed Objections to each of respondent's Motions to Compel Depositions contending how the depositions would be unduly burdensome given both of his clients current medical conditions. Also attached to Messrs. Van Sant's and Wingard's Objections are letters from medical providers explaining their respective medical conditions. Mr. Van Sant's Objection contains two medical letters, both written in 2024. Mr. Wingard's Objection contains two medical letters, both written in 2022.
On February 17, 2023, respondent filed two Motions to Compel the Taking of Depositions, pursuant to Rule74(c)(3) seeking to depose Messrs. James Freeman and Ricky Novak to obtain their personal knowledge pertaining to many of the factual issues presented in this case. By Order served on April 18, 2023, we denied the Motions to Compel, without prejudice. Although we denied these two motions, we also indicated how we "expect the parties to compromise by undertaking written interrogatories and/or holding informal interviews, without a transcriptionist present and not to exceed four hours per individual. After these interviews are held, and if it remains necessary, respondent is then free to file new motions to compel depositions of Messrs. Freeman and Novak."
Messrs. Freeman and Novak shared distinct roles in the syndicated conservation easement transaction at issue: they were (1) two of the primary purchasers, owners, and managers of the Subject Property, (2) the principals for
Strategic Capital Partners, which helped structure the transactions at issue, (3) the principals for Bridge Capital Associates, Inc., which marketed the transaction to investors, and (4) they are the principals of at least two nearby related real estate development projects. Accordingly, respondent previously asserted that the information these individuals possess is exclusive to them because their thoughts and impressions based on advice they were given from various sources cannot be gleaned from emails and transactional documents. Messrs. Freeman and Novak have not been deposed in this case; however, we assume their interviews have been conducted.
Discussion
I. Nonconsensual Depositions Generally
Nonconsensual depositions are an extraordinary method of discovery that can only be taken pursuant to an order from our Court. These depositions are available only where a party or nonparty witness can give testimony that is discoverable within the meaning of Rule 70(b) and where such testimony practicably cannot be obtained through informal consultation or communication under Rule 70(a)(1), interrogatories under Rule 71, requests for production of documents under Rule 72, or consensual depositions under Rule 74(b). The decision to require an individual to submit to a nonconsensual discovery deposition is a matter that is solely within the discretion of the presiding judge.
In addition to the essential criteria that the moving party must show under Rule 74(c), the Court weighs various factors to determine whether a particular case warrants an extraordinary discovery method. In K & M La Botica Pharmacy, Inc. v. Commissioner, T.C. Memo. 2001-33, 2001 WL 117701, we identified three factors to consider:
(1) Whether the movant has established a specific and compelling basis for the deposition;
(2) Whether the movant intend the deposition to serve as more than a substitute for cross-examination at trial; and
(3) Whether the movant has had prior opportunities to obtain the desired information or could obtain it through other means or from another source.
II. Has Respondent's Motions to Compel Depositions Satisfied the Requirements Under Our Rules and Case Law?
A. Compliance with Rule 70(b)
Under Rule 70(b) "discovery may concern any matter not privileged and which is relevant to the subject matter involved in the pending case." Bernardo v. Commissioner, 104 T.C. 677, 682 (1995). It is up to the party opposing the production to show that the information is not discoverable. Rutter v. Commissioner, 81 T.C. 937, 948 (1983) (citing Branerton Corp. v. Commissioner, 64 T.C. 191, 193 (1975)). Rule 70(b) provides that scope of discovery includes all information and responses that concern any nonprivileged matter that is relevant to the subject matter involved in the case. Under this rule if the information or response sought "appears reasonably calculated to lead to discovery of admissible evidence," then it is properly within the scope of discovery.
In the written Objections, counsel for Messrs. Wingard and Van Sant objected to the depositions on the grounds of relevancy, seeks impeachment evidence, seeks conclusionary statements, and is made in bad faith since it seeks information related to IRS's ongoing civil penalty investigation. In his May 31, 2024, Reply to Messrs. Wingard's and Van Sant's Objections, respondent stated how he "vehemently disputes that the requested depositions are sought for any other purpose other than the instant case development, and in particular, to prove that Messrs. Wingard and Van Sant were not qualified appraisers because they were aware of the promoter's needed valuation figure, potentially conveyed by Strategic Capital Partners (SCP)."
It seems rather apparent that Messrs. Wingard and Van Sant do possess relevant, non-privileged information relating to one or more of the issues in this case. We acknowledge that IRS would likely gain some additional information related to its ongoing civil penalty investigation through a deposition of Messrs. Wingard and Van Sant. Nevertheless, we cannot say the request in this case is made in bad faith and therefore conclude respondent's Motions to Compel Depositions seek discoverable evidence under our Rules.
B. Has Respondent's Motion to Compel the Taking of Deposition of Nonparty Witness Martin H. Van Sant Complied with our Case Law Factors?
Counsel for Mr. Van Sant has filed an Objection to respondent's Motion to Compel his Deposition, indicating how he objects on two grounds: "[f]irst the depositions are only allowed in extraordinary circumstances" and second "Mr. Van Sant is not competent to testify due to his current medical condition." The Court finds counsel's representations regarding his client's competency, along with the attached medical letters to be compelling.
The Court's determination here, however, should not be considered by the parties as the Court's ruling on whether Mr. Van Sant is "unavailable" for trial. See Fed. R. Evid. 804(a)(3) and (4).
We anticipate respondent may seek to disqualify the appraisal by Messrs. Wingard and Van Sant and their status as qualified appraisers under the theory that they have run afoul of subdivision (ii) of Treas. Reg. § 1.170A-13(c)(5), which is sometimes referred to as the "knowledge regulation." However, as we have said before, in gauging a partnership's "knowledge" under this regulation we look to the person with ultimate authority to manage the partnership. See, e.g. CNT Invs., LLC v. Commissioner, 144 T.C. 161, 222 (2015). We believe facts supporting or negating respondent's assertion under the "knowledge regulation" can also be appropriately obtained from petitioner and other third parties. Furthermore, although we denied, without prejudice, respondent's motions to depose Messrs. Novak and Freeman, we directed the parties to conduct informal interviews of these individuals, which we presume have occurred.
Mr. Van Sant has already confirmed that he has produced all documents in his possession. Mr. Van Sant's previous sat for a deposition in Oconee v. Commissioner, Docket No. 11814-19, which we assume contains information about his qualifications and methodology, including his compliance and understanding of USPAP. This prior deposition transcript could presumably be used in this case, based on this witness's availability at trial. Considering the foregoing, we conclude respondent's Motion to Compel the Deposition of Mr. Van Sant fails to establish that the desired information being sought could not be obtained through other means or from another source.
Finally, and notwithstanding the foregoing reasoning, this Court otherwise has discretion to limit this use of discovery under Rule 70(c). Based largely on the medical opinions of Mr. Van Sant's treating health care providers, we conclude forcing him to sit for a deposition at this time could be detrimental to his health. Applying our discretion under Rule 70, and based on this good cause shown, we will deny respondent's Motion to Compel.
C. Has Respondent's Motion to Compel the Taking of Deposition of Nonparty Witness Thomas F. Wingard Complied with our Case Law Factors?
Counsel for Mr. Wingard has filed an Objection to respondent's Motion to Compel his Deposition, indicating how "compelling Mr. Wingard to testify at a deposition under these circumstances would impose an undue and unnecessary burden, given his current medical condition and the potential for further harm to his health." Based on these representations by counsel, and for many of the reasons expressed in Part III above with respect to the Motion to Compel the deposition of Mr. Van Sant, we are not inclined to proceed with the deposition of Mr. Wingard.
However, prior to making a determination as to Mr. Wingard's availability, we request current information from his treating health care provider(s). In the Response to respondent's Motion to Compel, Mr. Wingard's counsel stated that he is "taking Donepezil which is used to treat dementia." However, Mr. Wingard's counsel attached two letters, dated October 2022 and November 2022 from Fred Smith, MD which simply indicates that "he is not able to testify in court at this time." We would request Mr. Wingard's counsel furnish a current opinion explaining Mr. Wingard's current medical condition, including the effects of his medication, and his present ability to testify.
Considering the foregoing, it is
ORDERED that respondent's Motion to Compel the Taking of Deposition of Nonparty Witness Martin H. Van Sant, filed April 17, 2024, is denied. It is further
ORDERED that on or before July 19, 2024, counsel for nonparty witness Mr. Wingard shall file an additional response to respondent's Motion to Compel the Taking of Deposition of Nonparty Witness Thomas F. Wingard and may furnish a current letter from his treating health care provider(s). It is further
ORDERED that respondent's Motion to Compel the Taking of Deposition of Nonparty Witness Thomas F. Wingard, filed April 17, 2024, is held in abeyance.