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State agencies claim information protected by deliberative process privilege

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An acrimonious fight between an Indiana businessman and the Indiana Department of Revenue has not only forced the Indiana Tax Court to take the unusual step of getting involved in the discovery process but also created a case of first impression.

The dispute, Nick Popovich v. Indiana Department of Revenue, 49T10-1010-TA-53, was sparked after the Department of Revenue assessed additional income tax, interest and penalties on Nick Popovich for 2002 through 2004.

Popovich, current owner of Sage-Popovich Inc., claimed he was entitled to deduct certain business expenses because he was a professional gambler. The Department of Revenue disagreed and upheld the proposed assessments after a 2010 hearing.

Next, Popovich appealed to the Tax Court and the contentious discovery process began in June 2011. The businessman filed two motions for discovery requests but the department objected, saying much of the information was protected, in part, by the deliberative process privilege.

The deliberative process privilege is part of the Federal Rules of Civil Procedure and has been raised on the federal level in other cases. However in Indiana state courts, this procedural issue as far as its application and scope has not been addressed.

auberry Auberry

Brent Auberry, partner at Faegre Baker Daniels LLP, said the use of deliberative process privilege could impact other taxpayers.

Every year, tax cases seem to be getting more litigious as taxpayers contest rulings on property taxes and income, he explained. The guidance given by the Tax Court on this privilege is important as plaintiffs determine what information they want in discovery.

Randal Kaltenmark, partner in the Barnes & Thornburg LLP tax department, agreed.

He noted parties involved in tax litigation in the last five to seven years have been doing more discovery than in the past. Taxpayers have the burden of proof so they are engaging in discovery to find out the Department of Revenue’s basis for making the adjustment to their tax liability.

Access to information is important, Kaltenmark said. Using the deliberative process privilege could hamper a taxpayer’s discovery.

The Department of Revenue argued Indiana has deliberative process privilege and that privilege provides a “wide shield” to protect certain documents and communications. It invoked this privilege to prevent the disclosure of all documents and communications regarding the thoughts and decision-making process of hearing officers, auditors and other employees involved in the administrative process.

In support of its contention that the state does have such a privilege, the Department of Revenue pointed to the privilege in Federal Rules and noted Indiana uses those rules as a model for its Trial Rules.

The Tax Court dismissed the department’s privilege claims.

“Accordingly, the Court fails to find that Indiana recognizes a deliberative process privilege applicable to the discovery rules and leaves it to the Legislature to elevate public policy regarding the protection of deliberative process privilege,” Judge Martha Wentworth wrote.

James Gilday, of Gilday & Associates P.C., represents Popovich. Both he and the Office of the Indiana Attorney General, representing the Department of Revenue, declined to comment on the case issues.

The Department of Revenue did not appeal Wentworth’s ruling. However, the agency could still contest the decision after the court issues a final opinion on Popovich’s appeal.

Tax attorneys doubt the court’s finding on the deliberative process privilege will have much impact outside of tax circles. However, one attorney has recently encountered the defense in his litigation against another state agency.

Irwin Levin, managing partner at Cohen & Malad LLP, said the Indiana Bureau of Motor Vehicles is invoking the privilege to bar discovery in a second lawsuit his firm has filed against the agency. Plaintiffs claim the bureau overcharged for certain fees and have been trying to ascertain, through the discovery process, how the bureau found out about the incorrect fees and how it handled the problem.

irwin levin Levin

The BMV, Levin said, maintains that information is protected by the deliberative process privilege.

According to Levin, by using the privilege, the BMV is essentially saying, “We citizens have no right to know how it came to overcharge us and why it continued to overcharge us.”

More broadly, Levin worried the privilege could be used to cloud government transparency and hide wrongdoing. And he hoped the Legislature would not pass any measures that would ultimately prohibit the public’s right to know.

Since the Tax Court specifically noted the decisions regarding privilege are the purview of the General Assembly, Auberry expects the issue will come up in the Statehouse. He said he would not be surprised if the Department of Revenue makes an effort to get statutory language passed to address the issue of deliberative process privilege.

The chair of the Senate Tax and Fiscal Policy Committee, Sen. Brandt Hershman, R-Buck Creek, was unavailable for comment as to whether the Legislature would take up this issue.

The Popovich case is continuing in the Tax Court. A hearing is scheduled for July 31 on a motion filed by Popovich for Trial Rule 37 sanctions.

In May, the attorney general’s office filed a motion to temporarily withdraw appearances as counsel for the Revenue Department. However, the issue became moot when the attorney general rescinded the request and continued its representation without interruption

According to Bryan Corbin, spokesman for the AG’s Office, the Department of Revenue asked the attorney general to withdraw. He did not elaborate why the request was made and later rescinded.

“While docket entries on such housekeeping matters can appear confusing absent context, when government agencies are litigants, it is not uncommon over the duration of a case for an attorney to appear for an agency, serve for a time, then withdraw and a different attorney appear,” Corbin said.•

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  1. Your article is a good intro the recent amendments to Fed.R.Civ.P. For a much longer - though not necessarily better -- summary, counsel might want to read THE CHIEF UMPIRE IS CHANGING THE STRIKE ZONE, which I co-authored and which was just published in the January issue of THE VERDICT (the monthly publication of the Indiana Trial Lawyers Association).

  2. Thank you, John Smith, for pointing out a needed correction. The article has been revised.

  3. The "National institute for Justice" is an agency for the Dept of Justice. That is not the law firm you are talking about in this article. The "institute for justice" is a public interest law firm. http://ij.org/ thanks for interesting article however

  4. I would like to try to find a lawyer as soon possible I've had my money stolen off of my bank card driver pressed charges and I try to get the information they need it and a Social Security board is just give me a hold up a run around for no reason and now it think it might be too late cuz its been over a year I believe and I can't get the right information they need because they keep giving me the runaroundwhat should I do about that

  5. It is wonderful that Indiana DOC is making some truly admirable and positive changes. People with serious mental illness, intellectual disability or developmental disability will benefit from these changes. It will be much better if people can get some help and resources that promote their health and growth than if they suffer alone. If people experience positive growth or healing of their health issues, they may be less likely to do the things that caused them to come to prison in the first place. This will be of benefit for everyone. I am also so happy that Indiana DOC added correctional personnel and mental health staffing. These are tough issues to work with. There should be adequate staffing in prisons so correctional officers and other staff are able to do the kind of work they really want to do-helping people grow and change-rather than just trying to manage chaos. Correctional officers and other staff deserve this. It would be great to see increased mental health services and services for people with intellectual or developmental disabilities in the community so that fewer people will have to receive help and support in prisons. Community services would like be less expensive, inherently less demeaning and just a whole lot better for everyone.

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