[1]              Kansas does not appear to recognize a comparable tax return privilege.  As noted, in this case the Kansas judge expressly ordered the production of the responding parties’ tax records. Kansas courts determine whether tax returns are relevant to the subject matter, and balance the relative burden of obtaining the information.  “Courts have developed a two-pronged test to assure a balance between the liberal scope of discovery and the policy favoring the confidentiality of tax returns. ‘First the court must find that the returns are relevant to the subject matter of the action. Second the court must find that there is a compelling need for the returns because the information contained therein is not otherwise readily obtainable.’ . . .‘[O]nce the burden [of showing relevancy] is met, the burden shifts to the party opposing production to show that other sources exist from which the information is readily obtainable.’” (Hilt v. SFC Inc. (D.Kan. 1997) 170 F.R.D. 182,189.)

            Here, there is no dispute that the tax documents sought are reasonably calculated to lead to the discovery of admissible evidence, and that they are not “readily obtainable” elsewhere.  The public policy of both Kansas and California favor compelling production of the tax returns in this case.

for instance, when it has been waived or when “a public policy greater than that of confidentiality of tax returns is involved.”  (Ibid., quoting Sammut v. Sammut (1980) 103 Cal.App.3d 557, 560.)

            Petitioner argues that Respondent has, by his litigation conduct, waived the privilege here.  The Court is unconvinced.  Efforts to impede proper discovery can result in evidentiary sanctions, but the Court lacks sufficient evidence of Albawardi’s knowing relinquishment of a known right. 

            But the other basis, an overriding public policy, does support disregarding the tax return privilege in a case like this.  As the Supreme Court acknowledged in Schnabel, “there is a strong legislative policy in favor of fair child and spousal support awards and a fair division of community assets.”  (Schnabel, supra, 5 Cal.4^th at p. 722.)  Accordingly, the high court concluded that corporate tax returns and payroll tax returns were discoverable.  (Id. at p. 723.)

            Responding Parties seek to distinguish Schnabel because Petitioner has not shown that she has any ownership interest in the companies listed in the subpoena.  The Court finds Responding Parties’ reading of Schnabel too narrow. The Supreme Court did not state that the tax return privilege was abrogated only if one had an ownership interest in the tax paying entity.  Rather, it concluded that the important public policy favoring adequate support and fair property division overcame the privacy interests supporting the tax return privilege.

            In any case, Responding Parties’ argument falls in the face of legislative enactments that effectively swallow up the tax return privilege in cases involving child support and spousal support.  Neither party discussed Family Code section 3552, which provides in subdivision (a): “In a proceeding involving child, family, or spousal support, no party to the proceeding may refuse to submit copies of the party’s state and federal income tax returns to the court, whether individual or joint.”  More specific to the issue at hand, at subdivision (b):  “The tax returns may be examined by the other party and are discoverable by the other party.  A party also may be examined by the other party as to the contents of a tax return submitted pursuant to this section.” 

These provisions plainly nullify the tax return privilege in cases such as this one in which the issue is determining child support and spousal support.  The Interstate Discovery Act requires that the Court protect California’s policy interests.  Here, Albwardi has refused to disclose financial information, including tax filings, concerning companies for which Responding Parties provided tax services.  Under California law, assuming he held an interest in or controlled any of the entities, Respondent himself could not properly refuse to turn over company financial documents, including tax filings and other tax documents.  Permitting Responding Parties to refuse on his behalf to disclose tax returns undermines this state’s policy.[1] 

            To the extent Respondent may claim a tax return privilege, it is overridden in this case. The privilege does not preclude an order that Responding Parties produce documents encompassed in the subpoena. 

Responding Parties’ procedural objections are unpersuasive.

            Respondent Parties’ procedural objections are also insufficient to deny the petition.  They deal with minor calendaring matters, did not prejudice Responding Parties, or can be addressed by the Court’s order.  The Petition was filed two days late, but it appears to have been caused by a clerical error that was promptly corrected.  Responding Parties were not disadvantaged and this type of mishap is exactly the sort of issue that can be addressed under Code of Civil Procedure section 473. Albawardi received notice of the petition and filed a joinder in Responding Parties’ opposition. Again, there was no prejudice to him or to his tax advisors. In any case, the Court may depart from strict compliance under Code of Civil Procedure section 1985.3, subdivision (h).  The Court concludes procedural defects in service complained of here are not jurisdictional.  Responding Parties’ objections to the clarity and breadth of the subpoena are exaggerated, and are addressed below. Their evidentiary objections are for the most part overruled.  They also mistakenly view this matter as one of post-judgment discovery. But even had a judgment been entered, under Family Code section 218, a post-judgment motion automatically reopens discovery.

The Court will modify the subpoena to make Responding Parties’ obligation clear.

            Responding Parties offer two arguments concerning the scope of the subpoena.  With respect to the California subpoena, they point to gaps such as when the production is to be made and point out that there is no list of business records to be produced on attachment 3, but only a list of people and entities.  The Court rejects this argument.  The California subpoena plainly incorporates the subpoena issued by the Kansas judge in the Underlying Action.

            That subpoena ordered responding parties to “produce all records and documents, including but not limited to tax returns and all supporting documentation, correspondence, services agreements, and billing invoices from 1998 through the present for any of the following individuals or entities,” followed by a list including Respondent and 56 entities. The Kansas subpoena describes documents to be produced.

But Responding Parties contend the description is vague and overbroad.  They argue that the language “all…records and documents…for any of the following individuals or entities,” would require them to produce “every single document relating to Mr. “Albawardi or the 56 companies, from an invitation to an employee lunch, to records relating to employees not involved in this dispute….”

            Responding Parties protest too much, but the Court recognizes that non-parties should have clear guidance from the Court, so as to facilitate an efficient search and production, and so they do not risk sanctions or contempt. The Court finds that the language in the subpoena should be interpreted reasonably.  Moreover, under the Interstate Discovery Act, this Court must be faithful to the Kansas court’s intent, while protecting California residents from undue burden. The Court concludes that so interpreted, the subpoena may be clarified as follows:

            (1) All documents reflecting the financial condition of the individuals and entities listed below from 1988 through the present;

(2) All state and federal tax returns and supporting documents for the individuals and entities listed below from 1988 through the present; and

(3) All documents reflecting service agreements with, and billing invoices to, the individuals and entities listed below from 1988 through the present. 

Thereafter follows the numbered list of 57 individuals and entities.

            To the extent Responding Parties are unable to comply with the subpoena for any category of documents or person or entity listed, they must execute a declaration on personal knowledge that is consistent with Code of Civil Procedure section 2031.230.

Sanctions.

            Petitioner seeks sanctions against Respondent. Had this been a motion to Respondent, the Court would likely have ordered monetary sanctions against him.  The Court is more flexible concerning the burdens of third parties responding to discovery, even those with a close business relationship with Respondent.  The Court will wait to see how Responding Parties comply with the Court’s order.  For now, therefore, the Court declines to award sanctions.

Conclusion.

            Petitioner’s motion to enforce the subpoena to Responding Parties is granted as modified.  The documents subject to the subpoena are:

           (1) All documents reflecting the financial condition of the individuals and entities listed below from 1988 through the present;

(2) All state and federal tax returns and supporting documents for the individuals and entities listed below from 1988 through the present; and

(3) All documents reflecting service agreements with, and billing invoices to, the individuals and entities listed below from 1988 through the present. 

The “individuals and entities listed below” are the list of 57 individuals and entities set forth on attachment 3 of the California subpoena. 

            The Court orders Responding Parties to serve these documents with Bates Numbers on each page to Petitioner’s counsel on or before November 17, 2023. 

           
 Sanctions are denied.