Court Opinion

ID: 4388723
Source: CourtListenerOpinion
Date Created: 2019-04-18 18:03:43.237765+00
Date Added: 2024-06-11T14:50:28.822251
License: Public Domain

ATTORNEYS FOR PETITIONER:                        ATTORNEYS FOR RESPONDENT:
RANDAL J. KALTENMARK                             CURTIS            T. HILL,   JR.
ZIAADDIN MOLLABASHY                              ATTORNEY GENERAL OF INDIANA
BARNES & THORNBURG LLP                           REBECCA L. MCCLAIN
Indianapolis, IN                                 DEPUTY ATTORNEY GENERAL
                                                  Indianapolis, IN
JOHN H. DIES
JEREMY M. FINGERET                               SEAN P. BURKE
ROSALIND J. LEWIS                                HAMISH S. COHEN
DAVID C. LORENTZ                                 ELINAM B. KPOTUFE
JEFFERSON H. READ                                MATTINGLY BURKE COHEN &
ZERBE MILLER FINGERET                            BIEDERMAN LLP
FRANK & JADAV, P.C.                               Indianapolis, IN
Houston,   TX

                                   THEIN
                                                                                           FILED
                          INDIANA TAX COURT                                            Apr 18 2019, 1:20 pm

                                                                                           CLERK
                                                                                       Indiana Supreme Court
                                                                                          Court of Appeals
                                                                                            and Tax Court
TELL CITY BOATWORKS,       |NC.,

       Petitioner,

                v.                                            Cause No. 18T-TA—00004
                                                 VVVVVVVVVV

INDIANA DEPARTMENT OF
STATE REVENUE,

       Respondent.

           ORDER ON PETITIONER’S MOTION TO STRIKE THE REPORT
           AND EXCLUDE THE TESTIMONY OF JOHN WILLIAM SULLIVAN

                                   FOR PUBLICATION
                                     April 13,   2019

WENTWORTH,           J.

      This matter concerns Tell City Boatworks, |nc.’s Motion to Strike the Report and

Exclude the Testimony of John William Sullivan. Upon review, the Court denies            Tell City’s

Motion.
                                                        BACKGROUND
         Tell City is    a domestic corporation that designs and manufactures barges and other

vessels.     (E        Jt.    Stipulation of Facts (“Second Stip”)                               1m   1-4,    1O   (filed 1/1   1/2019).)    In

2015,    Tell City filed           an amended Indiana income tax                                 return, claiming         its   work on     six

projects entitled       it   to both    a qualified research expense credit (the                                   “QRE    credit”)   and an

income tax refund            for   2010.       (ﬂ Second           Stip.   1111        6, 29.)        The Department subsequently

determined that         Tell City       was    not entitled to the             QRE          credit     and denied       Tell City’s refund

claim.   (E Second              Stip.   111T   7-8.)

         On January           16,    2018,     Tell City timely initiated                   an   original tax appeal, claiming that

the Department’s             final   determination          was erroneous. During                        the course of the         litigation,

the Department retained                  Robson Forensic,              Inc. to investigate                      “whether a process of

experimentation would [have] be[en] necessary                              .   .   .   in   order for        [Tell City] to   complete” the

six projects at issue.               (ﬂ       Pet’r    Mem. Supp.          Mot. Strike Report                      & Exclude     Test.   John

William Sullivan (“Pet’r             Br.”),    Ex.   A at   1.)   Thereafter,               Robson Foresnic’s employee, John

William Sullivan, investigated the matter and prepared a report.                                                   (E   Pet’r Br., Ex. A.)

(ﬂ       ﬂ    Resp’t Resp. Opp’n Pet’r Mot. Strike                                 & Exclude            Test.      John William Sullivan

(“Resp’t Resp. Br.”), Ex. 2.)

         On January           24, 2019, Tell City            moved     to strike Sullivan’s report                        and exclude       his

testimony.        On   February 18, 2019, after the matter was                                   fully briefed,       the Court took Tell

City’s   Motion under advisement. Additional facts                                 will     be supplied when necessary.

                                                      LAW AND ANALYSIS
         In its   Motion, Tell City claims that Sullivan’s report and testimony are inadmissible

for three interrelated          reasons regarding             their overall lack of relevancy                       and   credibility.   (E
generally Pet’r Mot. Strike Report                 &    Exclude Test. John William Sullivan              (“Pet’r Mot.”).)

In    response,      the     Department maintains that Sullivan’s report and testimony are

admissible because Tell City’s complaints simply go to the weight of the evidence, not                                    its

admissibility.      (E generally Resp’t Resp.                  Br.)

                                                               1.

           Tell   City   first   maintains that Sullivan’s report and testimony are inadmissible

because       Sullivan’s opinions “are exclusively               based upon a defunct            legal standard[:]” the

Discovery Rule.           (Pet’r Br. at 4-1      1 .)    Tell City explains that “[t]he ‘Discovery Rule’ is               an

antiquated idea whereby a              company would have                to   exceed, expand or refine the        common

knowledge of science             in   a given area to       show      qualified research       was   performed.” (Pet’r

Br. at     6 (footnote omitted).) Tell City contends that because the parties have previously

stipulated that another standard applies, Sullivan’s report                         and testimony are not         relevant,

misleading, and potentially prejudicial.                   (ﬂ       Pet’r Br., Ex. C.)

           The    parties   arguments on the merits indicate                     that   one   of the issues before the

Court involves whether                 Tell    City’s     activities     constitute     “elements of a process of

experimentation” for purposes of IRC § 41 and the related Treasury Regulations.1                                       (Si;

e_.g_.,   Pet’r Br. at 8—1 1; Resp’t          Resp.     Br. at 4-9.)     The    resolution of that issue       will   depend

on several        factors.       Si;     ﬂ,      Treas. Reg. § 1.41-4(a)(3)(i) (2019) (implicating, for

example, questions of whether                  Tell City’s activities         were “undertaken       for the   purpose of

discovering information that              is   technological        in   nature[,]” or   were “intended    to eliminate

uncertainty concerning the development or improvement of a business component”

1
   Indiana incorporates certain provisions of the Internal Revenue Code and related Treasury
Regulations for purposes of determining whether a taxpayer qualifies for the QRE credit. See,
$1., IND.    CODE §      6-3.1-4-1 (2019).
(emphasis added».

          The Treasury Regulations expressly                    provide, however, that a taxpayer                        does not

need     to   show that    it   sought   to obtain information that              exceeded, expanded, or refined the

common knowledge                 of science     in   the relevant   field to     meet the   “uncertainty” requirement.

ﬂ       Treas. Reg. § 1.41-4(a)(3)(ii). Nonetheless, evidence of that type                               is    not automatically

irrelevant, misleading, or potentially prejudicial that                      would make         it   inadmissible.        Indeed,

other courts have considered similar evidence                               in   determining whether a taxpayer’s

activities     were undertaken            for the       purpose of discovering technological information.

Compare        qenerallv, e.q.,        Suder v. Comm’r, 108 T.C.M. (CCH) 354                         (T.C.     2014)   m    Trinity

Indus. Inc.      v.   United States, 757 F.3d 400 (5th               Cir.   2014).      The Court        therefore finds that

Tell City     has not shown that Sullivan’s report and testimony are inadmissible on                                    this basis.

                                                               2.

          Next, Tell City maintains that Sullivan’s “testimony regarding                               [its]   compliance with

inaccurate legal standards”                is    inadmissible because              it   makes        legal conclusions that

“‘invade[] the province of the court to                  determine the applicable            |aw[.]”’          (ﬂ      Pet’r Br. at

11-12; Pet’r Reply [Resp’t Resp. Br.] (“Pet’r Reply Br.”) at 5-6.)                               Indiana Evidence Rule

704 generally allows opinions                   to   embrace   ultimate issues to be decided by the trier of

fact,    but prohibits opinions as to legal conclusions.                                ﬂ   Ind.      Evidence Rule 704.

Sullivan’s report       and testimony are based on              his   experience and expertise                   in   the maritime

industry      and appear         to provide opinions regarding Tell City’s activities in relation to the

standards of practice             in   that field, not legal conclusions.                (ﬂ     Pet’r Br., Ex. A; Resp’t

Resp.     Br.,   Ex. 2.)        Therefore, Tell City has not established that Sullivan’s testimony                               is

inadmissible on this basis.
                                                              3.

          Finally, Tell City     claims that Rule 702 of the Federal Rules of Evidence precludes

the admission of Sullivan’s report and testimony because:                                 1) Sullivan lacks sufficient

facts,   knowledge, background, or data               “to    discuss the technical aspects of the design and

construction of ships and barges[;]” 2) Sullivan’s opinions are not the product of reliable

principles or methods;       and    3) Sullivan failed to apply the principles                     and methods           reliably

to the facts of the case.         (ﬂ        Pet’r Mot. at 2; Pet’r Br. at 12-25; Pet’r                 Reply       Br. at 6-8.)

The federal     rules of evidence, however,            do not govern the resolution                of this issue        because

this   case involves Indiana’s laws, and thus, Indiana’s rules of evidence                                    .        See,    1.9;,

Malinski   v.   State,   794 N.E.2d 1071, 1084               (Ind.      2003) (explaining that the federal rules of

evidence and federal case law                    may be      helpful in analyzing Indiana             Rule of Evidence

702(b), but they are not binding on state evidentiary law matters).

         Indiana Rule of Evidence 702 provides:

             (a)A witness who               is   qualified    as an expert by knowledge,                 skill,

                   experience, training, or education may testify in the form of an
                   opinion or otherwise if the expert’s scientific, technical, or other
                   specialized knowledge            will   help the       trier of fact to   understand the
                   evidence or    to   determine a fact            in   issue.

             (b)   Expert scientific testimony                is   admissible only           if   the court       is

                   satisfied that the expert testimony rests                     upon     reliable scientific
                   principles.

Ind.   Evidence Rule 702. This Rule, among others, governs the admission of two types of

expert evidence: 1) scientificalIy-based evidence; or 2) non-scientific evidence based on

an expert’s specialized knowledge and experience.                             ﬂ      Malinski,      794 N.E.2d          at    1084-

86.    When     expert evidence        is   based upon the expert’s              skill   or experience instead of the

application of scientific principles, the proponent of the evidence “must only demonstrate
that the subject matter         is   related to      some   field     beyond the knowledge                   of lay       persons and

that the witness        possesses       sufficient     skill,   knowledge or experience                     in     the   field to assist

the   trier   of fact to understand the evidence or to determine a fact                            in   issue.” Norfolk S. Ry.

Co.   v.   Estate of Waqers, 833 N.E.2d 93, 102 (Ind. Ct. App. 2005) (citation omitted), trans.

m.
           Sullivan   has a Bachelor of Science                 in   Marine Engineering, he                  is    a Licensed Chief

Engineer and a Certified Marine Surveyor, and he has worked within the Maritime Industry

for   over 30-years      in   a variety of capacities.               (ﬂ Resp’t           Br.,   Ex.     1   at 5.)       For instance,

Sullivan’s curriculum vitae indicates that                  he has many years of experience                               in   shipyards

worldwide as a “senior               level   manager on new                builds from the design                       phase through

delivery,     commissioning, and operations[.]” (Resp’t                      Br.,   Ex.    1    at 4.)      Moreover, his report

indicates that his opinions            were based on            his review of       a variety of materials concerning

Tell City     and the   six projects at issue.           (E generally           Pet’r Br., Ex. A; Resp’t                       Resp.   Br.,

Ex. 2.)       Sullivan’s knowledge,           skill,   experience, and training regarding designing and

building vessels        exceeds      that of lay persons,            and   thus, the Court finds              it   to   be reasonable

that his report         and testimony         will     assist the Court             in   understanding the evidence.

Consequently,         Tell    City    has not shown Sullivan’s report should be stricken or                                            his

testimony excluded pursuant to Indiana Evidence Rule 702.
                                         CONCLUSION

       For the foregoing reasons,   Tell City’s   Motion to Strike the Report and Exclude the

Testimony of John William Sullivan      is   DENIED.

       SO ORDERED     this 18th   day   0f April 2019.

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                                                                   d Wentwo                 h,   JUdge
                                                       Indiana Tax Court

Distribution:
Randal   J.Kaltenmark, John H. Dies, Jeremy M. Fingeret, Rosalind J. Lewis, David C.
Lorentz, Ziaaddin Mollabashy, Jefferson H. Read, Rebecca L. McClain, Sean P. Burke,
Hamish S. Cohen, Elinam B. Kpotufe