ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:

FRANCINA A. DLOUHY GREGORY F. ZOELLER

J. DANIEL OGREN ATTORNEY GENERAL OF INDIANA

FAEGRE BAKER DANIELS LLP JESSICA R. GASTINEAU

Indianapolis, IN WINSTON LIN

DEPUTY ATTORNEYS GENERAL

Indianapolis, IN

THEODORE R. BOTS

SCOTT L. BRANDMAN

JENNY A. AUSTIN

BAKER & MCKENZIE LLP

New York, NY

 

IN THE

INDIANA TAX COURT

 

THE UNIVERSITY OF PHOENIX, INC., )

)

Petitioner, )

)

v. ) Cause No. 49T10-1411-TA-00065

) 

INDIANA DEPARTMENT OF )

STATE REVENUE, )

)

Respondent. )

 

ORDER ON RESPONDENT’S VERIFIED MOTION FOR PROTECTIVE ORDER

 

FOR PUBLICATION

November 28, 2016

WENTWORTH, J.

The University of Phoenix, Inc. (“UoPX”) has appealed the Indiana Department of 

State Revenue’s assessment of additional gross income tax and interest for the period 

ending on August 31, 2009, through and including August 31, 2011 (the “period at 

issue”). The matter is currently before the Court on the Department’s Verified Motion for 
2

Protective Order. The Court denies the Department’s Motion.

FACTS AND PROCEDURAL HISTORY

On November 7, 2014, UoPX initiated an original tax appeal alleging that the 

Department’s assessment of additional gross income tax and interest for the period at 

issue ran afoul of the sourcing provisions for service revenue under Indiana Code § 6-3-

2-2. More specifically, UoPX claimed that the Department erred in computing its 

alleged tax liability by sourcing some of its online tuition service revenue to Indiana 

based on a market or customer-based test despite the fact that Indiana Code § 6-3-2-2 

required that the revenue be sourced based on the costs of performance test.

As the litigation continued, the parties cooperatively used a variety of discovery 

tools to develop their respective positions. By October 21, 2016, however, the parties’

cooperative efforts broke down and the Department filed a discovery enforcement 

motion that asked the Court to either bar or reschedule an October 28, 2016,

subpoenaed deposition of the former Commissioner of the Indiana Department of State 

Revenue, Michael Alley. Although the Court quashed the subpoena, it advised the 

parties that UoPX could depose Mr. Alley at a later date.

On November 1, 2016, UoPX sent a second subpoena to Mr. Alley, requesting 

that he appear for a deposition on November 29, 2016. UoPX sought to depose Mr. 

Alley on the following topics (which are referred to hereafter as the “deposition topics”): 

1) the Tax Competitiveness and Simplification Report of 

September 2014 (the “Report”), Mr. Alley’s September 29, 2014, 

presentation on the Report, and Section 14 of House Bill 1349;

2) the Department’s “position and interpretation of Indiana’s ‘costsof-performance’ sourcing regime generally and how it should be 

applied to UoPX specifically[;]”
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3) “the Department’s involvement in the studies and reports, and 

specifically the Department’s views, comments and approval of 

the statements describing Indiana’s ‘cost[s] of performance’

sourcing regime pursuant to [Indiana Code] § 6-3-2-2(f)[;]” and

4) “the Department’s involvement in the studies and reports, and 

specifically the Department[’]s views, comments and approval of 

the statements regarding the replacement of Indiana’s ‘cost[s] of 

performance’ sourcing with market or customer based 

sourcing.”

(See Pet’r Resp. Resp’t V. Mot. Protective Order (“Pet’r Resp. Resp’t V. Mot.”) ¶¶ 3, 11

(referring to Pet’r Resp. Resp’t V. Mot. Protective Order or Alternative Quash Dep. But 

Allow Extension Of Time To Take Deps. (“Pet’r Resp.”) ¶¶ 9-11).) On November 10, 

2016, the Department responded with its Verified Motion for Protective Order, asserting

that a protective order must be issued to protect Mr. Alley from a “burdensome and 

oppressive” deposition. (See Resp’t V. Mot. Protective Order (“Resp’t V. Mot.”) ¶¶ 10-

11.) On November 18, 2016, UoPX filed its response and on November 22, 2016, the 

Department filed its reply consistent with the Court’s expedited briefing schedule. 

Additional facts will be supplied as necessary.

LAW

Discovery, the process by which litigants ascertain the existence of material facts 

previously unknown, is designed to allow a liberal exchange of information essential to 

litigate all relevant issues and to promote settlement. Popovich v. Indiana Dep’t of State 

Revenue, 7 N.E.3d 406, 411 (Ind. Tax Ct. 2014). “[T]oday’s pretrial discovery 

procedures are intended to ‘make a trial less a game of blindman’s bluff and more a fair 

contest with the basic issues and facts disclosed to the fullest practicable extent.’” Id.

(quoting Whitaker v. Becker, 960 N.E.2d 111, 115 (Ind. 2012)).

“Discovery is designed to be self-executing with little, if any, supervision of the 
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court.” Trost-Steffen v. Steffen, 772 N.E.2d 500, 512 (Ind. Ct. App. 2002), trans. 

denied. In the event the discovery process breaks down or is inadequate, however, 

Indiana’s trial rules provide that the parties may request court intervention to resolve 

their disputes. Specifically, Indiana Trial Rule 26(C) states that “[u]pon motion by any 

party or by the person from whom discovery is sought, and for good cause shown, the 

court in which the action is pending . . . may make any order which justice requires to 

protect a party or person from annoyance, embarrassment, oppression, or undue 

burden or expense[.]” Ind. Trial Rule 26(C).

ANALYSIS

The Department has asked the Court to issue a protective order for the 

November 29, 2016, deposition of Mr. Alley and quash the related subpoena pursuant 

to Indiana Trial Rule 26(C). The Department claims that the protective order will shield 

Mr. Alley from annoyance, oppression, and the undue burden and expense of the

deposition because UoPX seeks information not relevant to the issues in this case. 

(See Resp’t V. Mot. ¶¶ 7, 10; Resp’t Reply Supp. V. Mot. Protective Order (“Resp’t 

Reply”) ¶¶ 1, 7.) The Department also claims a protective order is warranted because

UoPX has already deposed three other competent witnesses,1obtained testimony on 

the deposition topics, and admitted it would not question Mr. Alley about the actual 

issues in this case. (See Resp’t V. Mot. ¶¶ 9-10; Resp’t Reply ¶¶ 1, 3-5.) Moreover, the 

Department claims that the issuance of a protective order will signal to UoPX that the 

Court does not condone its insinuation that Mr. Alley’s status as a retiree makes him 

 

1

 In late October of 2016, UoPX deposed 1) Steven Chang, the Department’s auditor that 

conducted UoPx’s audit, 2) Mandi Shawarira, Mr. Chang’s supervisor and “the [Department’s] 

Deputy Director of Enforcement, in charge of out-of-state auditors generally[,]” and 3) LuAnn 

Pelsor, “the [Department’s] Technical Manager for the Enforcement Division [who] oversees the 

Audit Review and Computer Audit Team.” (Resp’t V. Mot. Protective Order ¶¶ 2-3.) 
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readily available for depositions because “[s]ubpoenas should not be frivolously served 

on high-ranking officials[.]” (Resp’t V. Mot. ¶ 10.) (See also Resp’t Reply ¶ 6.) 

“‘[R]elevancy for purposes of discovery is not the same as relevancy at trial; a 

document [or testimony] is relevant to discovery if there is the possibility that the 

information sought may be relevant to the subject[-]matter of the action.’” Popovich, 7

N.E.3d at 413 (citation omitted). UoPx’s petition indicates that one of the issues in this 

case is whether, with respect to sourcing UoPX’s online tuition service revenue during 

the period at issue, Indiana Code § 6-3-2-2 allowed for the use of a market or customerbased sourcing test or mandated the use of the costs of performance test alone. (See

Pet’r Original Tax Appeal Pet. Set Aside Final Determination Ind. Dep’t State Revenue 

& Pet. Enjoin Collection of Tax ¶¶ 45-120.) While Mr. Alley was not the Commissioner 

during the period at issue, his September 29, 2014, presentation on the Report, the 

Report itself, and House Bill 1349 contain information on both tests. (See, e.g., Pet’r 

Resp. ¶¶ 7-8, Ex. A at 38-39, Ex. B at 5; Pet’r Resp. Resp’t V. Mot. ¶ 11 (referring to

Pet’r Mot. Compel Resps. Discovery Reqs. (“Pet’r Mot. Compel”) ¶ 5).) The deposition 

topics, therefore, are relevant to the subject-matter in this case for purposes of 

discovery.2 

Moreover, it is reasonable to assume that Mr. Alley, given his unique status as 

the former Commissioner, could provide additional information on the identified 

deposition topics. Indeed, the documentation before the Court indicates that additional,

rather than redundant, information on the deposition topics could be elicited from Mr. 

 

2

 This, however, does not mean that any information Mr. Alley provides will automatically be 

admissible at trial. See, e.g., Popovich v. Indiana Dep’t of State Revenue, 7 N.E.3d 406, 413 

(Ind. Tax Ct. 2014) (stating that the test for relevancy during the discovery process and at trial 

differs). 
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Alley because the Department’s witnesses provided little information on the deposition 

topics. (See Resp’t Reply ¶¶ 3-4; Pet’r Mot. Compel ¶ 51.) Finally, although Indiana

caselaw recognizes that high-ranking government officials “‘should not ordinarily be 

compelled to testify unless it has been established that the testimony to be elicited is 

necessary and relevant and unavailable from a lesser ranking officer[,]’” Hunt v. State, 

546 N.E.2d 1249, 1252 (Ind. Ct. App. 1989) (citation omitted), trans. denied, Mr. Alley is 

no longer at the helm of the Department’s ship as was the high-ranking official in Hunt. 

For these reasons, the Department is not entitled to the protective order that it seeks on 

behalf of Mr. Alley.

CONCLUSION

“Given that the scope of discovery is broad and highly dependent on the facts of 

each case, the Court must exercise discretion in determining what discovery is 

necessary and what is vexatious.” Popovich, 7 N.E.3d at 413 (citations omitted). The 

Court does not find UoPX’s request to depose Mr. Alley vexatious. Accordingly, the 

Department’s Motion is DENIED. Consistent with the requirements of Indiana Trial Rule 

37(A)(4), the Court will schedule a hearing regarding the propriety of an award of 

expenses by separate cover. 

SO ORDERED this 28th day of November 2016.

Martha Blood Wentworth

Judge, Indiana Tax Court

Distribution: Francina A. Dlouhy, J. Daniel Ogren, Theodore R. Bots, Scott L. 

Brandman, Jenny A. Austin, Jessica R. Gastineau, Winston Lin.