Judge: Nick A. Dourbetas, Case: 2021-01231713, Date: 2022-12-09 Tentative Ruling

Motion to Compel Production

Defendant The Ichiho Family Trust’s (hereinafter, defendant) motion to compel further responses to its second set of requests for production is DENIED.

By this motion, defendant seeks plaintiff David Shapiro’s (hereinafter, Shapiro or plaintiff) “tax returns, W-2 and/or 1099 forms from the time range of 2016 through 2021, to substantiate Plaintiff Shapiro’s loss of income claim.” (Taddeucci Decl. ¶ 17; Motion P&As at pp. 7:25-8:2.) 

It is well settled that federal and state tax returns are generally privileged. (Sav-On Drugs, Inc. v. Superior Court (1975) 15 Cal.3d 1, 6; Webb v. Standard Oil (1957) 49 Cal.2d 509, 513 (Webb); Deary v. Superior Court (2001) 87 Cal.App.4th 1072, 1077-1078.)  The privilege applies to tax returns and records that are an “integral part” of the tax returns, such as W-2 and 1099 forms. (Brown v. Superior Court (1977) 71 Cal.App.3d 141, 143-144 (Brown).)

There are few recognized exceptions to the privilege. The courts deem the privilege waived or inapplicable when (1) there is an intentional relinquishment of the right; (2) the gravamen of the action is inconsistent with the continued assertion of the privilege; or (3) a public policy greater than that of confidentiality of tax returns is involved. (Schnabel v. Superior Court (1993) 5 Cal.4th 704, 721 (Schnabel).)

There is no evidence here of intentional relinquishment of the privilege nor do the circumstances support application of the second exception. Plaintiff has not “placed in issue the existence and the content of [his] tax returns and the tax consequences of the computations thereon.” (Wilson v. Superior Court (1976) 63 Cal.App.3d 825, 830 (Wilson).) A plaintiff’s tax returns may be relevant to a personal injury claim arising out of a slip and fall incident seeking damages for lost income, but the gravamen of the claim is not so inconsistent with the taxpayer privilege so as to compel disclosure. Plaintiff’s personal injury claim is not defined by or depend on the existence and/or content of his tax returns, or any computations therein. A personal injury action claiming loss of income is not “a case, such as Wilson v. Superior Court (1976) 63 Cal.App.3d 825..., wherein the taxpayer, by initiation an action over her tax returns, [has] placed their content in issue and thereby waived the privilege.” (Brown, supra, 71 Cal.App.3d at p. 144.) The mere fact that a plaintiff seeks certain damages that may be established by reference to his tax returns is not, standing alone, sufficient to compel the disclosure of tax return information. (See Weingarten v. Superior Court (2002) 102 Cal.App.4th 268, 275 (Weingarten) [“the fact that a complaint contains a punitive damages allegation, or a factfinder has found a basis for imposing punitive damages does not, standing alone, constitute a basis for compelling the disclosure of tax return information”].)

As for the third exception, defendant fails to provide any argument or authority as to whether a public policy greater than that of confidentiality of tax returns is involved. Defendant’s reply implies that in fact, defendant is not seeking relief under this exception. (See Reply at p. 3, ll. 19-28.)

Nevertheless, to the extent defendant believes its right to discovery regarding the issue of plaintiff’s damages compels disclosure, the public policy exception to the privilege “is narrow and applies only ‘when warranted by a legislatively declared public policy.’ [Schnabel, supra, 5 Cal.4th at p. 721].” (Weingarten, supra, 102 Cal.App.4th at p. 274.) “Public policy favoring discovery in civil litigation is not, by itself, sufficiently compelling to overcome the privilege.” (Fortunato v. Superior Court (2003) 114 Cal.App.4th 475, 483 (Fortunato).)

“Although the public policy favoring the confidentiality of tax returns does not give way merely because the information is relevant to prove [certain types of claimed] damages [e.g., punitive damages], the balance changes when the [responding party], without a valid basis, refuses to comply with legitimate discovery requests that seek nonprivileged financial information.” (See Weingarten, supra, 102 Cal.App.4th at p. 276.) Thus, in certain situations, it possible that disclosure may be ordered where the responding party has failed to provide any meaningful nonprivileged financial information; “has engaged in a pattern of improperly obstructing efforts to obtain financial records through means that do not implicate the privilege and it is reasonable to assume this pattern of conduct will continue; and ... less intrusive methods to obtain the financial records have been unsuccessful.” (See id. at pp. 276-277.)

Defendant has failed to show that this is such a situation. (See Weingarten, supra, 102 Cal.App.4th at pp. 276-277 [requisite showing].) Plaintiff Shapiro’s income may be determined by reference to numerous types of financial records from the relevant time frame that do not implicate the tax return privilege, such as, e.g., plaintiff’s and/or his office’s invoices/billing records (Shapiro is self-employed/employed by his corporation, David Shapiro, MD, Inc., see Taddeucci Decl. at Ex. B [response to form interrogatory 8.2]), his office’s bank records, and other similar books and records.

Defendant has failed to show that it has attempted to obtain, and that Shapiro has refused to provide, such records or other similar nonprivileged records/information, in order to evaluate plaintiff’s loss of income claim or to make sense of any discrepancies between the different versions of the profit and loss statements that Shapiro has already produced (which, at this point, tend to show that the two versions take into account different information/losses). Although defendant argues that it has already subpoenaed Shapiro’s corporation/employer for financial records, the subpoena did not seek access/copies of specific corporation records that support/substantiate the numbers in the subject profit and loss statements; rather, it just broadly asked for documents pertaining to Shapiro (the individual) only.

In sum, defendant has failed to make the showing necessary to overcome plaintiff’s objection based on the tax return privilege. “The fact that financial records are difficult to obtain or that a tax return would be helpful, enlightening or the most efficient way to establish financial worth is not enough” to overcome the privilege. (Weingarten, supra, 102 Cal.App.4th at p. 276.)

Defendant shall give notice.