118 T.C. No. 12

UNITED STATES TAX COURT

MELEA LIMITED, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 7268-00. Filed March 22, 2002.

R sought production of certain transcripts of

depositions taken in a patent infringement suit in

which P was a defendant. Pursuant to stipulation and

agreement of the parties to the infringement suit, the

U.S. District Court entered a protective order

regarding materials that any of the parties could label

as confidential without leave of the District Court. 

In response to R’s request, P refused to produce the

deposition transcripts, contending that to do so would

be in violation of the protective order. The

transcripts are otherwise discoverable and relevant to

the tax issue before this Court. The infringement suit

is closed, and expense, loss of time, and inconvenience

would be occasioned by requiring the parties in this

case to proceed to the District Court to attempt to

reopen the closed infringement suit.

Held: P will be compelled to produce the

protected materials, and this Court’s compulsion order

will incorporate the requirements of the District

Court’s protective order to continue the protection of
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any proprietary business information that may be

contained in the deposition transcripts.

Eric J. Zinn, for petitioner.

Michael J. Cooper, for respondent.

OPINION

GERBER, Judge: We consider respondent’s motion seeking to

compel production of transcripts of certain depositions from

petitioner. Petitioner’s refusal to produce is based on its

argument that production would result in a violation of a

protective order issued by another court. We consider whether it

would be appropriate to compel petitioner to produce under such

circumstances. 

Background

Melea Limited is a Gibraltar corporation with a business

address in Geneva, Switzerland. Michael Ladney (Ladney), who is

the petitioner in a related case pending in this Court, is a U.S.

citizen who was the prior owner of several patents associated

with petitioner’s business activity, as it relates to plastic

injection molding. Ladney is the principal shareholder of

several U.S. corporations involved in the manufacture of plastic

parts. At some time, Ladney transferred patents and other assets

to offshore entities, including petitioner. 
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1 Section references are to the Internal Revenue Code, and

Rule references are to the Tax Court Rules of Practice and

Procedure.

Without detailing the relationships of the various entities

that respondent contends exist, we note that respondent

determined generally that certain U.S. entities related to Ladney

are dependent agents of petitioner which, within the context of

section 864(c)(5),1 negotiated contracts on behalf of

petitioner. On that premise, respondent determined that

petitioner’s income is from sources outside the United States

which are effectively connected with petitioner’s U.S. trade or

business. Apparently, petitioner does not deny that it had a

U.S. trade or business but disputes that its income from sources

outside the United States is effectively connected with its U.S.

trade or business. 

Respondent seeks copies of deposition transcripts taken in

connection with litigation in the U.S. District Court for the

Middle District of Florida. Petitioner was a defendant in

litigation styled Cinpres Ltd. v. Hendry, Case No. 96-752-CIV-T24B (M.D. Fla., Dec. 12, 1998) (Cinpres case). That case

involved a patent infringement action brought by Cinpres, a

British company, against petitioner and a competitor of

petitioner. Petitioner, a foreign corporation, questioned the

U.S. District Court’s jurisdiction over it, and depositions were

taken, in part, to discern the relationship between petitioner
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and two of Ladney’s U.S. entities (the same ones that respondent

determined were petitioner’s dependent agents). 

Pursuant to stipulation and agreement of the parties in the

Cinpres case, the District Court entered a protective order on

June 10, 1997, in order to “expedite the flow of discovery

material, facilitate the prompt resolution of disputes over

confidentially, adequately protect material entitled to be kept

confidential, and insure that protection is afforded only to

material so entitled”.

 Although there had been disagreement between the parties as

to the content of the order, the parties, after assistance from

the District Court, stipulated and agreed to an order, which the

District Court approved. Under the protective order, any party,

without court approval, could designate documents as either

“confidential” or “attorney’s eyes only” by stamping same on the

document. Only documents containing “highly sensitive business

or technical information” could be stamped for “attorney’s eyes

only”. The Cinpres case was closed on December 12, 1998, without

a trial and following a settlement reached by the parties.

In pertinent part, the Cinpres protective order contained

the following prohibition on the use of documents classified as

confidential by the parties: (1) Other than use by the parties

to the Cinpres litigation and their counsel, disclosure of a

classified document was not permitted without prior written
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2 There is no indication who classified the redacted

portions as protected. We assume that the deponent classified

the redacted portions. The deponents were generally either

parties or their agents.

consent of the party that had classified the document as

confidential; (2) parties could apply to the court for

declassification of a document; (3) confidential information in

depositions could be classified as confidential by underlining

the confidential portion and designating that portion as under

the protective order; (4) if a classified document was subpoenaed

or ordered produced by another court, the party that classified

the document was to be advised; (5) classified documents were to

be used only for preparation and trial in the Cinpres case; (6)

the protective order provisions did not terminate at the

conclusion of the Cinpres case; and (7) within 120 days of the

termination of the Cinpres case the parties’ counsel were

permitted to maintain one set of protected matter, and all other

copies were to be returned to originating party or destroyed, at

the option of the originating party. 

Initially, petitioner refused to produce any of the

depositions but now has produced redacted versions to respondent. 

The redacted versions reflect that the redacted portions had been

classified as confidential under the protective order.2

Respondent contends he is entitled to the redacted portions. 

Petitioner contends that to the extent it has not produced
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3 We observe that petitioner has resisted the production of

the depositions. Petitioner appears to be using another court’s

protective order as a shield or bar to compliance with

respondent’s discovery request. Petitioner has not suggested any

alternatives and has displayed an aversion to seeking

modification of the protective order under consideration. 

Petitioner does not contend that any portion of the deposition

transcripts it has withheld contains proprietary business

information that would be in need of protection.

documents or provided the redacted portions, it is unable to do

so because of the protective order entered in the Cinpres case. 

Discussion

Petitioner urges this Court to respect the terms of the

protective order, which prohibits disclosure without modification

of the order and/or approval of the District Court that issued

the order. Petitioner suggests that respondent should first

attempt to request the District Court that issued the order to

modify it in order to accommodate the disclosure. Petitioner

further postulates that this Court should not entertain

respondent’s discovery request until after respondent has shown

that he was unable to obtain the materials from the District

Court. Petitioner, however, also argues that respondent is not

entitled to the protected material. We note that petitioner, who

was a party in the Cinpres case and would have standing under the

terms of the protective order, has not offered to approach the

District Court to facilitate respondent’s access to the protected

material.3 Petitioner is vigorously attempting to keep 
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from respondent the redacted portions of the deposition

transcripts. 

The material sought by respondent is relevant to the issues

we consider. As stated in Rosenfeld v. Commissioner, 82 T.C.

105, 112 (1984):

Rule 70(b) limits discovery to information or responses

which are relevant to the subject matter of the pending

litigation and which are not otherwise protected from

discovery on the ground of privilege or other

limitation. The standard of relevancy in a discovery

action is liberal. Zaentz v. Commissioner, 73 T.C.

469, 471-472 (1979). The burden of establishing that

the documents or responses sought are not relevant or

otherwise not discoverable is on the party opposing

production. Rutter v. Commissioner, 81 T.C. 937

(1983); Branerton II, supra at 193; P.T. & L.

Construction Co. v. Commissioner, supra at 408.

Petitioner has not shown that the material sought by respondent

is not relevant. Petitioner, however, has raised the question of 

whether the protective order issued in the Cinpres case is a

limitation on production in this proceeding.

This is our first occasion to consider whether this Court

should order the production of material which was subject to

another court’s protective order in a case which has been closed. 

Under the District Court’s protective order, a party or

“aggrieved entity” was permitted to intervene to declassify a

document. Clearly, petitioner would have been entitled to seek

to declassify the redacted portions of the deposition. To the

extent petitioner is the classifying party, it may have been

entitled to disclose without declassification. Respondent,
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4 We must assume from petitioner’s argument that respondent

should first attempt to obtain the documents by seeking them from

the District Court that petitioner believes that respondent had

standing under the protective order to seek declassification of a

document. 

possibly as an “aggrieved entity”, would have been able to seek 

declassification of the materials sought here.4

There appears to be no question about whether the protective

order survived the Cinpres litigation and continues to have full

force and effect on the parties subject to it or about the

issuing District Court’s ability/authority to modify or revoke

the order. See Public Citizen v. Liggett Group, Inc., 858 F.2d

775, 780-782 (1st Cir. 1988). 

Matters of comity influence courts’ decisions whether to

issue orders that affect or modify protective orders issued by

other courts. See, e.g., Deford v. Schmid Prods. Co., 120 F.R.D.

648, 650, 655 (D. Md. 1987); Puerto Rico Aqueduct & Sewer Auth.

v. Clow Corp., 111 F.R.D. 65, 67-68 (D.P.R. 1986). “These

principles, while unquestionably important, are not absolute, and

courts asked to issue discovery orders in litigation pending

before them also have not shied away from doing so, even when it

would modify or circumvent a discovery order by another court”.

Tucker v. Ohtsu Tire & Rubber Co., 191 F.R.D. 495, 499-500 (D.

Md. 2000).

Respondent did not have the opportunity to intervene in the

Cinpres case to seek access to the materials, and we are not
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certain that respondent has standing to currently seek

modification of the protective order that was entered. The

materials in question go to the heart of the merits of the tax

controversy in this case; i.e., the relationship between

petitioner and certain U.S. corporations. Under similar

circumstances, courts have recognized that a practical solution

may be needed. In that regard, the Cinpres case is closed, and

considerable delay and expense would be occasioned by the

reopening of that case or the filing of a new action to seek

modification of a protective order. Tucker v. Ohtsu Tire &

Rubber Co., supra at 500. 

One pivotal consideration is whether the court issuing the

order merely sanctioned the agreement of the parties or whether

the terms of the order instead reflect the issuing court’s

deliberative process. Where the issuing court has merely

sanctioned the parties’ agreement, those circumstances have been

considered to be more like a private “contract” between the

parties than a holding of a court. Id. 

The circumstances of the case before us appear to fit within

the guidelines that have been established by other courts for

compelling discovery of material that was specifically or

generally under a protective order of another court. We proceed

with caution and employ a pragmatic approach to a difficult

procedural problem. In doing so we follow the direction of
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5 Cases where one court compelled production of material

from a prior proceeding subject to a protective order: Morton

Intl., Inc. v. Atochem N. Am., Inc., 18 U.S.P.Q.2d 1411 (D. Del.

1990); LeBlanc v. Broyhill, 123 F.R.D. 527 (W.D.N.C. 1988); and

Carter-Wallace Inc. v. Hartz Mountain Indus., Inc., 92 F.R.D. 67

(S.D.N.Y. 1981). Cases where production was denied: Dushkin

Publg. Group, Inc. v. Kinko’s Serv. Corp,, 136 F.R.D. 334, 335

(D.D.C. 1991); Deford v. Schmid Prods. Co., 120 F.R.D. 648, 650,

655 (D. Md. 1987); and Puerto Rico Aqueduct & Sewer Auth. v. Clow

Corp., 111 F.R.D. 65, 67-68 (D.P.R. 1986).

several other Federal courts.5 The court in Tucker v. Ohtsu Tire

& Rubber Co., supra, formulated guidelines, which it distilled

from various court holdings, to assist in deciding whether it is

appropriate to enter a discovery order that would have the effect

of modifying an order issued by another court. We find that

formulation helpful in our consideration of respondent’s motion

to compel petitioner’s production of the deposition transcripts

in question. 

The first area of inquiry is the nature of the other court’s

protective order. This inquiry focuses on whether the order was

issued by a court as its resolution of a controversy or whether

the court simply approved the parties’ agreement. Courts have

afforded less deference to orders based on an agreement of the

parties and merely approved by the court. Conversely, more

deference has been afforded in situations where a court’s order

resulted from a holding that is based on the court’s deliberative

process.
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Concerning this aspect, petitioner contends that the

protective order in the Cinpres case was entered after an

extended period of disagreement by the parties, hearings by the

District Court, and assistance/involvement of the judge. 

Petitioner also points out that the protective order that was

finally entered was different in some respects from those

originally proposed by each party. Petitioner contends that the

order we consider did not merely represent a ministerial act by

the District Court, and, accordingly, more deference should be

afforded the order.

Respondent points out that the parties stipulated and agreed

to the protective order entered by the District Court. In that

regard, the order and the matters it covers were not subjected to

deliberation by the District Court. Although the District Court

played a role (mediator or monitor) in resolving the parties’

disagreement/negotiations regarding the content of the proposed

protective order, the District Court did not deliberate or decide

the controversy. Ultimately, the District Court entered a

protective order which had been stipulated and agreed to by the

parties. Under those circumstances, less deference need be

afforded the protective order on the theory that it is

essentially an agreement of the parties. Although we pay less

deference to the order conceptually, we defer to its substance 
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6 If petitioner had shown that the protected material was

exclusively sourced in another, the protective order provides for

notice to that party before production of a protected document

pursuant to another court’s order.

and intent to protect the confidential materials that may be

contained in the deposition transcripts. 

The second Tucker factor concerns the identity of the party

from whom discovery is sought. This factor focuses on whether

the document sought is from a person originally entitled to have

it. As a party to the Cinpres case, petitioner was entitled to

the transcript of depositions, and, therefore, petitioner was an

original holder of this document. 

Petitioner points out that the Tucker case involved a onesided order; i.e., the protected materials flowed from one

source. Petitioner contends that the circumstances of this case

are different because it was not a one-sided (sole source) order. 

Respondent counters that the documents sought (depositions) could

have been designated as protected by any of the parties in the

Cinpres case. In effect, the deposition transcripts are the

rightful property of each litigant and could have been treated by

any as confidential. In that regard, petitioner has not shown or

contended that the redacted portions of the deposition testimony

were exclusively sourced in another party in the Cinpres case.6

Additionally, petitioner does not contend that the redacted

portions of the deposition transcripts contained material that,
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in substance, requires protection, such as proprietary business

information. 

The third Tucker factor concerns whether the case in which

the order was issued is still pending, and if not, the court is

to consider the burden and expense that will be incurred in order

to seek modification of the order. The District Court proceeding

was settled by the parties and is no longer pending. On this

aspect, petitioner recognizes that expense and delay would be

occasioned by an action to reopen the infringement proceeding

simply to seek modification of the protective order. Petitioner,

however, contends that it is the only avenue by which the

protective order should be approached and that this Court should

not “circumvent” the District Court’s order. 

Respondent contends that he is not a party to the Cinpres

case. In addition, intervention in the Cinpres case would

require the involvement of the U.S. Department of Justice, which

would further complicate this matter and increase the expenditure

of public resources. Respondent also contends that it would be

an imposition on the District Court to interject it into a

discovery dispute in the U.S. Tax Court.

We agree with respondent. The District Court would have to

be asked, for the first time, to interpret and/or to modify an 

order negotiated by the parties in a case that is now closed and

final. The additional cost in expense, time, and inconvenience
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of the courts and the parties to seek review by the court that

issued the order is not warranted in this setting. 

The final factor concerns whether this Court, by

incorporating similar terms and protections in our order, could

continue the protections originally approved in the District

Court’s order. On that point, petitioner argues that neither

petitioner nor respondent has moved this Court for such a

protective order. Petitioner’s concern is that the Cinpres case

involved patent infringement and the possible need to protect any

proprietary business information. In that regard, the District

Court’s protective order appears to adequately provide for

protection of any proprietary business information. If we

incorporate the terms of the District Court’s protective order

into an order compelling the production of the requested

deposition materials, the same obligations and restrictions will

be imposed, with the exception that they will now be imposed on

respondent. We see no reason why the terms of the District

Court’s protective order cannot be incorporated into this Court’s

order compelling any production of materials from the Cinpres

case.

As explained, the information respondent seeks is relevant

to the issues we consider. It would be unjust to permit

petitioner continued access to this type of information with no

access to respondent. Another approach to remedying this
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situation would have been to order petitioner to produce the

materials without addressing the protective order. To simply

order such production would, however, place petitioner in the

position of having to seek modification of the Cinpres order and

to bear the expense of same. As a practical matter, petitioner

has not shown why the approach we have chosen (order production

with continued protection under the terms of the protective

order) is not appropriate under the conditions we consider. 

To reflect the foregoing,

An order will be issued

granting respondent’s motion to

compel and providing for continued

protection of the materials to be

produced.