Court Opinion

ID: 3156108
Source: CourtListenerOpinion
Date Created: 2015-11-19 17:05:12.907593+00
Date Added: 2024-06-11T11:47:20.018362
License: Public Domain

MEMORANDUM DECISION
      Pursuant to Ind. Appellate Rule 65(D),                               Nov 19 2015, 9:03 am
      this Memorandum Decision shall not be
      regarded as precedent or cited before any
      court except for the purpose of establishing
      the defense of res judicata, collateral
      estoppel, or the law of the case.

      ATTORNEY FOR APPELLANT                                  ATTORNEY FOR APPELLEE
      Emerito F. Upano                                        Jeffrey S. Zipes
      Indianapolis, Indiana                                   Coots, Henke & Wheeler, P.C.
                                                              Carmel, Indiana

                                                IN THE
          COURT OF APPEALS OF INDIANA

      Roger Tolentino and Repto, Inc.,                        November 19, 2015
      Appellants-Plaintiffs,                                  Court of Appeals Case No.
                                                              49A02-1502-CC-113
              v.                                              Appeal from the Marion Superior
                                                              Court
      Sheldon J. Hermann and Cheryl                           The Honorable Heather Welch,
      A. Hermann,                                             Judge
      Appellees-Defendants                                    Trial Court Cause No.
                                                              49D01-1403-CC-6959

      Bailey, Judge.

                                          Case Summary
[1]   Appellants/Plaintiffs/Counter-Claim Defendants Roger Tolentino and Repto,

      Inc. (collectively, “Repto”) appeal an order for the payment of attorney fees to
      Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015   Page 1 of 7
      Defendants/Counterclaimants Sheldon and Cheryl Hermann (collectively, “the

      Hermanns”) as a sanction under Indiana Trial Rule 37. We affirm.

                                                   Issues
[2]   Repto presents two issues for review:

              I.      Whether the trial court abused its discretion by ordering
                      Repto to produce business tax returns; and

              II.     Whether the trial court abused its discretion by ordering
                      Repto to pay attorney fees of $1,000.00.

                            Facts and Procedural History
[3]   On February 25, 2013, the Hermanns purchased a laundromat from Repto, and

      executed a promissory note in the principal sum of $109,900.00. On March 7,

      2014, Repto filed a complaint alleging that the Hermanns had defaulted on the

      promissory note. The Hermanns answered the complaint and filed

      counterclaims against Repto for actual fraud, constructive fraud, and deception.

[4]   The Hermanns served Repto with a request for production of documents,

      seeking corporate documents including financial statements and federal and

      state tax returns for “Mr. Klean Laundry and Discount Tobacco since 2010.”

      (App. at 43.) Repto produced some financial documents. However, with

      respect to the requested tax returns, Repto responded: “Information regarding

      tax returns … is privileged under federal and state law.” (App. at 45-46.) The

      Hermanns filed a motion to compel production.

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[5]   The trial court conducted a hearing on January 28, 2015. Repto argued that its

      tax returns were privileged and that discovery of the returns would not lead to

      admissible evidence because the Hermanns had admitted to execution of the

      promissory note and acknowledged the recitation of language therein. The trial

      court rejected these contentions, ordered Repto to produce the tax returns, and

      imposed a discovery sanction of $1,000.00. Following the denial of a motion

      for reconsideration, Repto appealed.

                                Discussion and Decision
                                         Standard of Review
[6]   Indiana Appellate Rule 14(A)(1) provides for an interlocutory appeal as a

      matter of right from an order “for the payment of money.” An order for the

      payment of attorney fees as a sanction under Indiana Trial Rule 37 is one

      example of an order “for the payment of money” which triggers the application

      of Appellate Rule 14(A)(1). Huber v. Montgomery Cnty. Sheriff, 940 N.E.2d 1182,

      1184 (Ind. Ct. App. 2010). The trial court has broad discretion when ruling on

      discovery issues; we will reverse only upon a showing that the trial court has

      abused its discretion. Id. at 1185. An abuse of discretion occurs when the trial

      court’s decision is clearly against the logic and effect of the facts and

      circumstances before the court or when the trial court has misinterpreted the

      law. Id.

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           Abuse of Discretion – Order for Production of Documents
[7]   Repto argues that business tax returns are privileged pursuant to 26 U.S.C. §

      6103(a), providing:

              No officer or employee of the United States, [and] no officer or
              employee of any State shall disclose any return or return
              information obtained by him in any manner in connection with
              his service as such an officer or an employee[.]

      Repto contends that the trial court misconstrued the law when it determined

      that the provision did not apply to the instant discovery dispute. The

      Hermanns respond that even a cursory reading of the language reveals that it

      governs the conduct of government employees. We agree. Repto has not

      shown that the trial court misapprehended the law by concluding that 26

      U.S.C. § 6103(a) did not categorize tax returns as privileged documents for

      discovery purposes.

[8]   Repto nonetheless suggests that, once the litigant’s tax information has been

      disclosed to a government employee, it is privileged unless the “litigant himself

      tenders an issue as to the amount of his income.” (Appellant’s Brief at 9 (citing

      Kingsley v. Delaware, Lackawanna & Western Railroad, 20 F.R.D. 156, 158

      (S.D.N.Y. 1957)). Repto asserts that the income of the laundromat was not

      placed in issue by its complaint, and that the income is wholly irrelevant after

      the Hermanns admitted to execution of the promissory note and acknowledged

      the language of the integration clause representing that the agreement was the

      entire agreement and understanding of the parties.

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[9]    Indiana Trial Rule 26(B) provides:

               Parties may obtain discovery regarding any matter, not
               privileged, which is relevant to the subject-matter involved in the
               pending action, whether it relates to the claim or defense of the
               party seeking discovery or the claim or defense of any other
               party, including the existence, description, nature, custody,
               condition and location of any books, documents, or other
               tangible things and the identity and location of persons having
               knowledge of any discoverable matter. It is not ground for
               objection that the information sought will be inadmissible at the
               trial if the information sought appears reasonably calculated to
               lead to the discovery of admissible evidence.

[10]   Repto has insisted that its complaint on the promissory note did not place the

       business income at issue and the Hermanns admitted the execution of the

       promissory note and its key provisions. However, this does not render the tax

       returns outside the scope of discovery. The Hermanns alleged that Repto had

       fraudulently induced them to purchase the laundromat by misrepresenting the

       income potential, a claim Repto largely ignores.

[11]   The scope of permissible discovery is broad, including that which “appears

       reasonably calculated to lead to the discovery of admissible evidence.” Id. See

       Hatfield v. Edward J. DeBartolo Corp., 676 N.E.2d 395, 399 (Ind. Ct. App. 1997)

       (recognizing that the rules of discovery are designed to “allow a liberal

       discovery process, the purposes of which are to provide parties with information

       essential to litigation of the issues, to eliminate surprise, and to promote

       settlement”), trans. denied. Repto has not shown that the trial court abused its

       discretion by ordering the disclosure of business tax returns.

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                            Abuse of Discretion – Attorney’s Fees
[12]   Indiana Trial Rule 37 provides for an award of sanctions related to a motion to

       compel:

               If the motion is granted, the court shall, after opportunity for
               hearing, require the party or deponent whose conduct
               necessitated the motion or the party or attorney advising such
               conduct or both of them to pay the moving party the reasonable
               expenses incurred in obtaining the order, including attorney’s
               fees, unless the court finds that the opposition to the motion was
               substantially justified or that other circumstances make an award
               of expenses unjust.

       The award of sanctions is mandatory, subject only to a showing that the losing

       party’s conduct was substantially justified, or that other circumstances make an

       award of expenses unjust. Huber, 940 N.E.2d at 1186. A party is substantially

       justified in resisting discovery if reasonable persons could conclude that a

       genuine issue existed as to whether a person was bound to comply with the

       requested discovery. Id.

[13]   Repto makes a cursory argument that its opposition to the motion to compel is

       substantially justified because its claim of privilege was not “frivolous,

       unreasonable, groundless, or litigated in bad faith.” (Appellant’s Brief at 15.)

       Repto does not otherwise develop an argument as to substantial justification or

       unjustness of the award. Repto has not shown that the trial court abused its

       discretion by ordering a mandatory sanction in compliance with Trial Rule 37.

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                                              Conclusion
[14]   Repto has not demonstrated that the trial court abused the broad discretion

       accorded to the trial court in discovery matters.

[15]   Affirmed.

       Baker, J., and Mathias, J., concur.

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