Court Opinion

ID: 5121453
Source: CourtListenerOpinion
Date Created: 2021-10-27 15:11:17.994475+00
Date Added: 2024-06-11T08:22:22.491232
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
               APPROVAL OF THE APPELLATE DIVISION

                                  SUPERIOR COURT OF NEW JERSEY
                                  APPELLATE DIVISION
                                  DOCKET NO. A-2639-20

CHARLES J. PARKINSON,

      Plaintiff-Respondent,

v.

DIAMOND CHEMICAL                      APPROVED FOR PUBLICATION
COMPANY, INC.,
                                             October 27, 2021

      Defendant-Appellant,                APPELLATE DIVISION

and

HAROLD DIAMOND,
individually,

     Defendant.
_______________________

           Argued October 12, 2021 – Decided October 27, 2021

           Before Judges Sabatino, Rothstadt and Mayer.

           On appeal from an interlocutory order of the Superior
           Court of New Jersey, Law Division, Union County,
           Docket No. L-1341-18.

           Lauren M. Paxton argued the cause for appellant
           (Calcagni & Kanefsky, LLP, attorneys; Lauren M.
           Paxton, of counsel and on the briefs; Gianna A. Bove,
           on the briefs).
            Susan L. Swatski argued the cause for respondent
            (Hill Wallack LLP, attorneys; Susan L. Swatski, of
            counsel and on the brief; Joshua Heines, on the brief).

      The opinion of the court was delivered by

SABATINO, P.J.A.D.

      Tax returns are declared confidential by both federal and New Jersey

statutes. Disclosure of tax returns and associated tax filings is permitted only in

limited circumstances in the absence of waiver or consent. For decades since

this court's seminal opinion in Ullmann v. Hartford Fire Ins. Co., 87 N.J. Super.

409 (App. Div. 1965), our courts have enforced that confidentiality pursuant to

a rigorous set of standards. As we held in Ullmann, a civil litigant can only

obtain an opposing party's tax filings through discovery by demonstrating to the

court the requested documents meet a heightened standard.           That standard

requires that (1) the filings are relevant to the case; (2) there is a "compelling

need" for the documents because the information likely to be contained within

them is "not otherwise readily obtainable" from other sources; and (3) disclosure

would serve a "substantial purpose." Id. at 415-16.

      In this wrongful discharge case, plaintiff sought in discovery the tax

filings of his former employer and the president of the company, and the

company's financial statements, spanning a multiyear period.              Plaintiff

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contended those records are likely to contain information that could support his

affirmative claims, and also may help him defend against defendants'

counterclaims alleging he caused the company to sustain large financial losses.

Defendants resisted the turnover of those confidential records. Motion practice

ensued to resolve the dispute.

      As part of his argument for compelling disclosure, plaintiff asserts the tax

filings of a business deserve less confidentiality than the filings of an individual

taxpayer and the rigorous Ullmann test does not apply to them. The trial court

endorsed that principle, although it concluded, in any event, plaintiff satisfied

the Ullmann test and ordered the full disclosure of the tax and financial records.

      On leave granted, we hold that the tax filings of corporations and other

businesses receive the same presumption of confidentiality as individual tax

records, and that the Ullmann test applies to them as well. No reported case in

the country to our knowledge has adopted a contrary principle.

      However, because the trial court did not make sufficient findings applying

this heightened standard, we remand this matter for more robust review with

such amplified findings.     In addition, the court should reconsider whether

disclosure of the non-tax financial statements is warranted. For both categories

of records, the court shall consider whether full disclosure is warranted or

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whether partial disclosure with redactions will suffice. The findings shall be

made after the court performs an in camera review of the disputed records.

                                        I.

      The disclosure issues before us arise out of what has been thus far a highly

contentious lawsuit and discovery process. The backdrop is as follows.

      Plaintiff Charles J. Parkinson worked as a full-time plant manager at

defendant Diamond Chemical Company, Inc. (owned by co-defendant, Harold

Diamond) from February 2008 to August 2017, when he was terminated.

Diamond Chemical is a "national manufacturer of laundry, ware wash,

housekeeping, sanitizing and other institutional and industrial products." It is a

closely-held corporation with about 200 employees, and its shares are not traded

on a stock exchange.

      In April 2018, Parkinson filed a complaint against Diamond Chemical and

Mr. Diamond, alleging he was unlawfully terminated because of his age (sixty

years old at the time of discharge) and perceived disability, in violation of the

New Jersey Law Against Discrimination ("LAD"), N.J.S.A. 10:5-1 through

10:5-42. The complaint sought both compensatory and punitive damages.

      In answering the complaint, defendants denied most of the allegations.

Their main asserted defense was that plaintiff was fired for "legitimate, non-

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discriminatory reasons." In objecting to plaintiff's interrogatories, defendants

asserted that plaintiff was fired in August 2017 because his "performance had

been subpar for some period of time and was continuing to deteriorate." They

further asserted plaintiff provided "flippant responses" when asked whether his

deficient actions were caused by a medical issue, and then they allegedly

confirmed that no such medical cause existed.

      Eventually, defendants pled counterclaims against plaintiff.           The

counterclaims alleged plaintiff wrongfully caused harm to the company in two

ways. First, they claim plaintiff allowed his plant to manufacture defective

products, despite knowing that a quality control machine to test those products

was not working.     This allegedly caused an important Diamond Chemical

customer to lose an estimated $400,000 or more in sales. 1 Defendants further

contend in this regard that plaintiff was inattentive to his duties, inexplicably

did not report to work for a ten-day period, evaded attempts by his superiors to

speak with him, and lied to them that his phone was not working. Second,

defendants claim plaintiff breached his contractual obligations by providing

1
  Defendants project that this $400,000 figure, based upon a monthly estimate,
should be increased to $600,000. They have not explained precisely how their
customer's own loss of sales consequently harmed Diamond Chemical, but we
will accept that premise of harm for the purpose of our analysis.
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services to a Diamond Chemical competitor within several months of his

termination, and that he improperly solicited and misappropriated confidential

information from his former co-workers.

      Plaintiff has denied these counterclaim allegations. He also disputes that

his actions and inactions caused the company any financial harm.

      With this context in mind, we turn to plaintiff's discovery requests. At the

center of this appeal is plaintiff's Document Request #20:

            Provide copies of financial statements and/or income
            tax returns of each named Defendant for three calendar
            or fiscal years, including the year of the dates of
            occurrences described in the Complaint, the prior year,
            and the subsequent year.2

            [(Emphasis added).]

      Through their counsel, defendants repeatedly objected to this request.

Among other things, they maintained that the sought-after tax records and

financial records "have zero relevance to any of the substantive claims or

defenses in this lawsuit." They asserted the tax records, in particular, are clothed

with a presumption of confidentiality, and that plaintiff has failed to show

2
  These years are: 2016, 2017, and 2018. The trial court ultimately also ordered
discovery of the records for a fourth year, 2019.
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relevance and a compelling need for them under the heightened Ullmann

standard.

      As for the non-tax financial statements, defendants similarly asserted they

contain nothing relevant to this case, and that those commercially sensitive

internal records deserve protection from disclosure under the balancing test set

forth in Herman v. Sunshine Chemical Specialties, Inc., 133 N.J. 329, 346

(1993).

      Defendants further argued their financial condition is not germane unless

and until a jury finds liability and is then asked to consider whether to award

punitive damages.    Hence, any disclosure of the tax records and financial

statements at this time is premature.

      Plaintiff, meanwhile, argued the tax filings and financial statements,

although he has not seen them yet, are likely to contain highly relevant

information that could both support his affirmative claims and contest

defendants' counterclaims. In essence, he argues the records could show he was

a proficient plant manager at Diamond Chemical, and that the company's

assertions that he caused it to lose money are unfounded, exaggerated, and a

pretext for discrimination.

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       After considering the parties' arguments, the trial court issued an oral

ruling on March 19, 2021. Among other things, the court found:

               . . . [G]iven the fact that the defendant has a
               counterclaim claiming that the actions of the plaintiff
               had a – had a negative impact on the business, the Court
               finds that there is a compelling need for the tax returns.
                      The Court finds that the compelling need,
               however, is only for the tax returns of Diamond
               Chemical, not the tax returns of Mr. Diamond
               individually. The Court will order that tax returns for
               the years – the corporate tax returns for -- for the years
               2016, 2017, 2018, and 2019 be produced.

               [(Emphasis added).]

The court also ordered the production and on-site inspection of the company's

financial records for the same years. The court rejected defendants' request for

a protective order disallowing this discovery, finding no "good cause" to justify

that relief.

       Diamond Chemical did not comply with the order compelling disclosure.

Instead, it moved for a stay of the order, which the trial court denied on May 14,

2021 in an oral opinion after hearing further argument. During that May 14

proceeding, the court observed:

               In addition, the heightened good cause standard [of
               Ullmann] applies only to individuals, not for
               corporations. Even assuming arguendo that the
               heightened good cause standard applies, this Court
               finds that it properly applied the burden of proof in this

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                                           8
            case on plaintiff to establish compelling need for the
            tax returns and financial records as indicated.

      This interlocutory appeal by Diamond Chemical ensued. It argues the

court erred by shifting the burden to the company to justify non-disclosure, and

that the court's terse findings are inadequate to satisfy Ullmann's heightened

standard of relevance and compelling need. In addition, the court erred in its

assessment of the discoverability of the financial records. The company further

maintains the court should not have ordered the full disclosure of the records

without reviewing them first in camera.

                                        II.

      The Internal Revenue Code declares that federal tax returns and associated

tax return information "shall be confidential," subject to certain specified

exceptions. See 26 U.S.C. § 6103(a).

      The Code broadly defines the term "return" to encompass "any tax or

information return, declaration of estimated tax, or claim for refund required by,

or provided for or permitted under, the provisions of this title which is filed with

the Secretary [of the Treasury] by, on behalf of, or with respect to any person,

and any amendment or supplement thereto, including supporting schedules,

attachments, or lists which are supplemental to, or part of, the return so filed."

26 U.S.C. § 6103(b)(1) (emphasis added). In addition, "return information"

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includes, among other things, "a taxpayer's identity, the nature, source, or

amount of his income, payments, receipts, deductions, exemptions, credits,

assets, liabilities, net worth, tax liability, tax withheld, deficiencies,

overassessments, or tax payments, whether the taxpayer's return was, is being,

or will be examined or subject to other investigation or processing. . . ." 26

U.S.C. § 6103(b)(2)(A).

      As explained by United States District Judge John Sirica in Payne v.

Howard, 75 F.R.D. 465, 469 (D.D.C. 1977), "[f]ederal income tax returns are

confidential communications between the taxpayer and the government." The

Code's confidentiality provisions "insure that tax returns are protected from

unauthorized disclosure while in the hands of government officials."     Ibid.

Judge Sirica elaborated:

            The reason for this protection is straightforward.
            Unless taxpayers are assured that the personal
            information contained in their tax returns will be kept
            confidential, they likely will be discouraged from
            reporting all of their taxable income to the detriment of
            the government. The opposite is also true. Unless
            confidentiality is guaranteed, taxpayers will likely
            refrain from using all of the tax-saving measures to
            which they are lawfully entitled.

            [Ibid.]

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                                      10
      The   Code does allow disclosure of tax returns to persons having a

"material interest," as listed in eleven subparts of subsection (e). 26 U.S.C. §

6103(e)(1) - (11). Persons who have a material interest in an individual's tax

return include that taxpayer, the taxpayer's spouse, and the taxpayer's child,

under certain circumstances.      26 U.S.C. § 6103(e)(1)(A)(i)-(iii).     As for

disclosure of the tax returns "of a corporation or subsidiary thereof," persons

with a material interest are defined by the Code to include persons designated

by the board of directors and shareholders owning one percent or more of the

company's stock. 26 U.S.C. § 6103(e)(1)(D)(i), (iii). Additionally, officers and

employees can access the corporation's or subsidiary's tax returns "upon written

request signed by any principal officer and attested to by the secretary or other

officer." 26 U.S.C. § 6103(e)(1)(D)(ii). 3

      The Code does not explicitly state that courts presiding over civil

litigation may order the release of otherwise confidential tax returns and return

information. However, case law has interpreted the Code to authorize such

disclosure when mandated by appropriate court orders. See, e.g., Payne v.

3
  Parkinson does not fit within any of these statutory categories defining persons
with a "material interest" in a corporation's tax returns. Nor do any of the
exceptions set forth in the other subsections of the Code appear to pertain to
him.

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Howard, 75 F.R.D. at 469-70 (recognizing such authority to release tax

information, provided that courts do not violate the "general federal policy

against indiscriminate disclosure"). Some federal circuit courts have held that

litigants waive the statutory protection of confidentiality by placing their income

or other financial matters "in issue" in a case. Ibid. (citations omitted). Other

circuits, like the Third Circuit, require courts to balance the requesting party's

"need for the information, its materiality, and its relevance" against the

taxpayer's privacy interests. Id. at 470; see also DeMasi v. Weiss, 669 F.2d

114, 120 (3d Cir. 1982) (noting the importance of the taxpayers' confidentiality

in tax returns and applying the same balancing test to stay a portion of a

discovery order mandating disclosure of ten individual defendants' and ninety-

seven non-party witnesses' gross incomes from their medical practices).

      New Jersey's laws similarly treat state tax filings as presumptively

confidential.   N.J.S.A. 54:50-8(a). The statute commands that, unless an

exception applies, "[t]he records and files of the director respecting the

administration of the State Uniform Tax Procedure Law or of any State tax law

shall be considered confidential and privileged . . . ." Ibid. (Emphasis added).

The statute directs that "neither the [D]irector [of the Division of Taxation] nor

any employee engaged in the administration thereof or charged with the custody

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                                       12
of any such records or files, nor any former officer or employee, nor any person

who may have secured information therefrom under [various exceptions listed

in N.J.S.A. 54:50-9] or any other provision of State law, shall divulge, disclose,

use for their own personal advantage, or examine for any reason other than a

reason necessitated by the performance of official duties any information

obtained from the said records or files or from any examination or inspection of

the premises or property of any person." Ibid. (Emphasis added). The New

Jersey "Taxpayers' Bill of Rights," N.J.S.A. 54:48-6, reinforces this policy, by

requiring the Director to issue statements that convey to the Division of

Taxation, among other things, its "obligations of explanation, communication

and confidentiality." (Emphasis added). Pursuant to N.J.S.A. 54:50-27, state

tax reports are not classified as "public records" subject to release under the

Open Public Records Act, N.J.S.A. 47:1A-1 to -13.

      Like their federal counterpart, New Jersey's tax statutes enumerate a list

of exceptions to confidentiality. The exceptions allow disclosure of tax filings

to other governmental agencies, N.J.S.A. 54:50-9, and also permit disclosure in

the context of the purchase, transfer, or assignment of tax certificates of debt,

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                                       13
N.J.S.A. 54:50-32.4 Although these statutory exceptions do not mention court-

ordered disclosure, our case law has long recognized a trial court's authority,

upon an appropriate showing, to compel taxpayers to provide adversaries with

access to their tax filings for their use in civil litigation.

      Long ago this court delineated these disclosure standards in the oft-cited

case Ullmann v. Hartford Fire Ins. Co., 87 N.J. Super. 409 (App. Div. 1965).

Ullmann involved an insurance coverage dispute involving multiple plaintiff

homeowners. Id. at 412-13. The defendant insurance company sought from the

homeowners copies of two years of their tax returns. Ibid. The insurer sought

those tax records to prove that the losses the homeowners suffered were not from

a windstorm—which would be covered by the insurance policy—but from some

other source, and also that they suffered less extensive damage than they had

reported. Id. at 413, 417. The homeowners opposed disclosure, asserting that

their tax returns were confidential. Id. at 413. The trial court in Ullmann

ordered disclosure, adopting the insurer's argument that it had shown "good

cause" to obtain the records. Id. at 414.

4
   Again, it does not appear that Parkinson fits any of the state statutory
exceptions for disclosure.
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                                          14
      On appeal in Ullmann, this court reversed the trial court's disclosure order

in an instructive opinion authored by Judge Gaulkin. We adopted a specialized

conception of good cause that recognizes the presumptive confidentiality of tax

filings. As Judge Gaulkin wrote:

            The average taxpayer is sensitive about his return and
            wishes to keep it from publication. He is entitled to that
            privacy unless there is strong need to invade it. If
            disclosure will not serve a substantial purpose it should
            not be ordered at all. If ordered, disclosure should be
            no greater than justice requires. The disclosure of entire
            returns should never be ordered if partial disclosure will
            suffice, and in all but the clearest cases the return
            should be examined by the judge before any disclosure
            is ordered. Even then the judge should impose such
            restrictions and limitations as may be necessary for the
            protection of the taxpayer.

            [Id. at 415-16 (citations omitted) (emphasis added).]

      Ullmann cited and reaffirmed observations in previous reported cases that

required a demonstration of relevance and a "compelling need" for disclosure of

tax records. See, e.g., Cooper v. Hallgarten & Co., 34 F.R.D. 482, 483-84

(S.D.N.Y. 1964) ("[T]he production of tax returns should not be ordered unless

it clearly appears they are relevant to the subject matter of the action or to the

issues raised thereunder, and further, that there is a compelling need therefor

because the information contained therein is not otherwise readily obtainable.").

Echoing these principles, Ullmann instructed that "[g]ood cause for the

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                                       15
production of income tax returns is not shown when the movant has the

information sought or can obtain it with little difficulty through other methods."

Id. at 415 (emphasis added).

      Ullmann also noted the sufficiency of the need depends upon the

circumstances, and that "[e]ach case must be decided upon its own facts." Id. at

414. The consideration of "practical consequences" should play a "leading role"

in the analysis. Id. at 415.

      Boiled down to its essence, Ullmann requires a demonstration of three

things by a requestor of an opponent's tax records in civil litigation: (1) the

records are likely to contain information relevant to the claims or defenses in

the case; (2) the requestor has a "compelling need" for the records to obtain

information that cannot be obtained readily from other sources; and (3)

disclosure of the records will serve a "substantial purpose."

       In addition to these burdens placed on the requestor, Ullmann prescribes

that trial judges generally should not order the release of tax filings without first

performing in camera review and considering whether partial disclosure of

redacted records will suffice.

      In the ensuing five decades since Ullmann was decided, the opinion has

withstood the test of time. We need not catalogue here the many published cases

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from our courts and the courts of other states that have cited it, let alone

countless unpublished decisions applying it regularly.        Most recently, we

applied Ullmann in affirming a trial court's finding of compelling need to turn

over tax returns of two defendants in a civil case. Premier Physician Network,

LLC v. Maro, 468 N.J. Super. 182, 195-97 (App. Div. 2021). The wisdom of

the Ullmann opinion, part of the pantheon of New Jersey law, remains eminently

clear.

         Plaintiff presents in this case a novel argument that the heightened

standard of Ullmann only applies to individual tax returns and does not apply to

the tax returns of corporations and other businesses. We reject that argument

for several reasons.

         First, as we have noted above, the language of the confidentiality

provisions within the Internal Revenue Code and New Jersey's tax statutes

makes no distinction between the tax returns of businesses from those of

individual taxpayers. The statutes broadly sweep in all tax filings and return

information.

         Second, plaintiff has not cited a single reported opinion from any

jurisdiction that has treated business tax returns as less confidential than those

of individual taxpayers. If anything, the few cases on the subject we have

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identified through our own research stand for the opposite proposition. See,

e.g., Manzella v. Provident Life & Cas. Co., 709 N.Y.S.2d 772 (App. Div. 2000)

(applying New York's "overriding necessity" standard to individual tax returns);

Four Aces Jewelry Corp. v. Smith, 680 N.Y.S.2d 539 (App. Div. 1998)

(applying New York's standard of showing "overriding necessity" to discover

corporate tax returns); Schnabel v. Superior Ct., 854 P.2d 1117 (Cal. 1993)

(applying same standard in California but noting information identifying non -

named parties within corporate tax returns is privileged).

      Even more to the point, the Texas Court of Appeals expressly rejected an

argument that corporate tax returns should not receive heightened protection as

do individual returns. In re Brewer Leasing, Inc., 255 S.W.3d 708, 715 (Tex.

App. 2008) (“More importantly, the Texas Supreme Court has never applied a

different standard to corporations in its assessment of the probative value of tax

returns and the privacy concerns in the release of tax returns.”). We are mindful

that the circumstances in Ullmann happened to involve the tax returns of

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                                       18
individuals, but nothing in that opinion supports the distinction that plaintiff

urges us to adopt. 5

      Third, we discern no public policies that should dilute the strong

presumption of confidentiality for business tax returns. 6 Business tax returns,

particularly the accompanying schedules, conceivably may reveal information

about the enterprise that is commercially sensitive. As just a few examples, the

tax filings might reveal the company's expenses during the tax year included

fees paid to consulting firms that specialize in mergers and acquisitions, or a law

firm that routinely represents debtors in bankruptcy matters. Or the tax filings

might reveal compensation paid to individual employees who may have a

privacy interest in their earnings. Or the filings may reveal that one subsidiary

5
   At oral argument before us, plaintiff cited to Capital Health System Inc., v.
Horizon Healthcare Services, 230 N.J. 73 (2017). The opinion is inapposite, as
it involved access to a hospital's internal proprietary records, not tax returns.
6
   We recognize the parties in this case entered into a mutual confidentiality and
protective order for the discovery process, allowing each party to designate
items they deem to be confidential and forbidding the opposing party from using
that information outside the litigation. That order specifically allows either
party to present a confidentiality issue to the court for resolution before
disclosure takes place so the turnover dispute before us was not resolved by the
terms of that order. Moreover, assuming for sake of discussion the truth of
defendants' counterclaim alleging plaintiff misappropriated the company's
proprietary information, defendants had a non-frivolous concern about harmful
disclosure to present to the court.
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or division of the firm is vastly underperforming compared with other units

within the firm. The disclosure of this information beyond tax officials to

competitors or other persons outside the company could at times be harmful.

      We appreciate that larger business enterprises, particularly those that ,

unlike Diamond Chemical, are publicly traded, may reveal financial information

in regulatory filings with the Securities and Exchange Commission and other

government agencies. Even so, those filings are not tax filings protected by the

confidentiality provisions of the Internal Revenue Code and state tax statutes.

      In sum, we hold on this key legal issue that the Ullmann standard of

heightened good cause does indeed apply to business tax returns as well as

individual tax returns.

      Having made this threshold clarification of the governing law, we briefly

turn to the trial court's application of Ullmann to Diamond Chemical's tax

records. In doing so, we apply a deferential scope of review. See Premier

Physician Network, 468 N.J. Super. at 195 (citing Bayer v. Twp. of Union, 414

N.J. Super. 238, 272-73 (App. Div. 2010) (“A [trial] court's discovery rulings

should not be reversed on appeal absent an abuse of discretion or a mistaken

understanding of the applicable law.”)).

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      Applying that scope of review, we conclude the trial court's abbreviated

oral rulings did not adequately analyze the requirements of Ullmann as they

pertain to this case and therefore it misapplied its discretion. The oral opinions

were unfortunately too conclusory in addressing the questions of relevance and

compelling need. The rulings did not mention or analyze the important facet of

whether the information within the tax filings could be readily obtained from

other sources. Nor did the opinions discuss whether a substantial purpose would

be achieved by disclosure. 7

      Most importantly, we note the trial court did not, as Ullmann recommends,

examine the tax records in camera to assess whether the records contain relevant

information and, if so, whether partial disclosure would suffice. Id. at 416. We

were advised by the company's counsel at oral argument that the tax returns

themselves are not voluminous, although the schedules are more extensive. We

7
    We do agree it is premature for the records to be turned over solely with
respect to punitive damages. See Herman v. Sunshine Chemical Specialties,
Inc., 133 N.J. 329, 343-44 (1993) (holding that the presentation of financial
information to a jury for the purposes of determining the propriety of punitive
damage awards must occur in a separate phase of trial from the liability trial, as
it could severely prejudice the liability determination).

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                                       21
must remand for this important step to be completed. 8 If the trial court finds the

task requires assistance, it may consider appointing a special master or a

technical adviser (such as an accountant) to assist it in the process.         See

Hammock v. Hoffman-LaRoche, Inc., 142 N.J. 356, 382 (1995) (noting that a

trial judge or a special master appointed pursuant to Rule 4:41–1 to –5 may

perform in camera review of documents to assess whether they should be

disclosed); Alk Assocs., Inc. v. Multimodal Applied Sys., 276 N.J. Super. 310,

318 (App. Div. 1994) (noting the court's power to appoint an independent expert

in certain circumstances).

      Lastly, we briefly comment on the trial court's rulings to compel the

turnover of the company's financial statements.        Unlike tax records, these

records are guided by ordinary standards for discovery and protective orders.

8
   We recognize that defense counsel represented to us at oral argument that
defendants do not intend to rely on the tax returns to prove their counterclaims.
That is not, however, dispositive of plaintiff's own potential need for the records
for evidentiary or investigative purposes, either as to his own claims of proper
performance and pretext, or his defense of the counterclaims. The records might
be reasonably calculated to lead to the discovery of admissible evidence.
Plaintiff is not obligated to accept opposing counsel's representation that the tax
records contain no relevant information. The court's in camera review can
confirm whether that characterization is true as to the entire set of records.

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As the Supreme Court held in Herman, 133 N.J. at 344-45, a balancing test

applies to such internal financial documents:

              Sensitive balancing by the trial court is essential to the
              accommodation of a plaintiff's need for discovery and
              the defendant's right to maintain the confidentiality of
              information about its financial condition . . . . In many
              cases, a plaintiff can obtain the needed information
              through the production of documents. For publicly-
              held corporate defendants, discovery of annual
              shareholder reports or reports filed with regulatory
              bodies should not unreasonably invade the defendant's
              privacy. Certified financial statements of a privately-
              held corporation may also be discoverable in an
              appropriate case. Discovery of income tax returns,
              however, may go too far.

              [Id. at 344-45 (emphasis added).]

      Our review of the record and the trial court's rulings leads us to conclude

that in camera review of Diamond Chemical's financial statements would be

beneficial and fairer to both parties. Consequently, we order such in camera

review of those non-tax records be undertaken as well. The trial court in its

discretion may order defense counsel to submit a privilege log to aid it in the

exercise. See Seacoast Builders Corp. v. Rutgers, 358 N.J. Super. 524 (App.

Div. 2003).

                                         III.

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     For all of these reasons, the trial court's orders compelling full disclosure

of Diamond Chemical's tax filings and financial statements for the years in

question are vacated without prejudice, and remanded in anticipation of in

camera review and more detailed findings. We suggest the court convene a case

management conference with counsel within thirty days to plan the remand.

     Vacated without prejudice and remanded. We do not retain jurisdiction.

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