Sahara Mart, Inc. v. Ind. Dep't of State Revenue

• Decision Date: 26 October 2018
• Docket Number: Cause No. 49T10-1709-TA-00017
• Parties: SAHARA MART, INCORPORATED, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

114 N.E.3d 36

SAHARA MART, INCORPORATED, Petitioner,

v.INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

Cause No. 49T10-1709-TA-00017

Tax Court of Indiana.

Filed October 26, 2018

ATTORNEY FOR PETITIONER: BRETT J. MILLER, BINGHAM GREENEBAUM DOLL LLP, Indianapolis, IN

ATTORNEYS FOR RESPONDENT: CURTIS T. HILL, JR., ATTORNEY GENERAL OF INDIANA, WINSTON LIN, DEPUTY ATTORNEY GENERAL, Indianapolis, IN, HAMISH S. COHEN, SEAN P. BURKE, RAYMOND J. BIEDERMAN, DAVID C. DICKMEYER, MATTINGLY BURKE COHEN & BIEDERMAN LLP, Indianapolis, IN

ORDER ON RESPONDENT'S MOTION FOR SANCTIONS AND CONTEMPT

WENTWORTH, J.

Sahara Mart, Incorporated, has challenged the Indiana Department of State Revenue's final determination assessing it with unpaid Indiana sales tax liabilities for the 2013, 2014, and 2015 tax years (the years at issue). The matter is currently before the Court on the Department's "Motion for Sanctions and Contempt" ("Motion"). The Court, being duly advised in the premises, grants the Department's Motion.

FACTS AND PROCEDURAL HISTORY

Sahara Mart owned and operated two grocery stores in Bloomington, Indiana during the years at issue. (Pet'r Original Tax Appeal Pet. ("Pet.") ¶¶ 3, 4; Jt. Stip. Facts ¶¶ 3-5.) In May of 2016, after completing an audit, the Department determined that Sahara Mart had underreported its taxable sales during the years at issue and failed to remit the proper amount of sales tax to the State. (See Pet. ¶ 7.) The Department subsequently issued Proposed Assessments against Sahara Mart, including penalties and interest, totaling approximately $6.8 million. (Pet. ¶ 8, Ex. B.) The Proposed Assessments were based on gross annual sales figures the Department extrapolated from Sahara Mart's 2007 federal income tax return. (See Pet. ¶ 7.) (See also Pet., Ex. C at 2 (indicating that the Department requested actual business records and receipts from Sahara Mart during the audit to no avail).)

Sahara Mart protested the Proposed Assessments and provided the Department with copies of a federal audit report that documented its gross sales for the 2008 through 2011 tax years. (Pet. ¶ 9.) On January 13, 2017, the Department issued a Letter of Findings directing a supplemental audit in light of the federal report. (See Pet., Ex. C at 4.) After the supplemental audit was completed, the Department issued revised Proposed Assessments reducing Sahara Mart's total sales tax liabilities for the years at issue to approximately $1.5 million. (Pet. ¶¶ 11-12, Ex. F.) Believing the revised Proposed Assessments were still incorrect, Sahara Mart filed an original tax appeal on September 25, 2017.

On March 29, 2018, while the case was pending, the Department deposed Sahara Mart's majority owner, Mr. Javad Noorihoseini. During the deposition, Noorihoseini testified that Sahara Mart was generally operated by unpaid family members, friends, and other volunteers. (See Deposition of Javad Noorihoseini ("Noorihoseini Dep.") at 17:7-22:16, 23:15-19, 69:20-70:4, 78:11-78:23.) Noorihoseini further testified that while Sahara Mart occasionally paid for the services of independent contractors and consultants, it had no employees. (See Noorihoseini Dep. at 18:11-21:9 (stating unequivocally that Sahara Mart does not have, nor did it have during the years at issue, "any employees"), 27:16-29:5 (testifying that "sometimes we have to hire some people to consult with [our suppliers] on some levels if need be[ a]nd sometimes we contract people to do things for a period of time" like moving or preparing things), 187:4-10.) In addition, Noorihoseini testified that approximately 40% of the beer and alcohol Sahara Mart purchased annually for resale was never sold because it went bad and had to be destroyed. (See Noorihoseini Dep. at 203:9-205:6, 208:10-209:17.)

Questioning the veracity of Noorihoseini's deposition testimony, the Department launched an "independent" investigation. (See Resp't Corrected Br. Supp. Mot. Sanctions and Contempt ("Dep't Br.") at 6, 9 (stating that "it seemed highly unlikely a company could run two grocery stores each open seventy-six hours a week without any employees or that it would destroy huge amounts of alcohol on an annual basis rather than reducing its orders or otherwise adapting as a business").) During the course of its investigation, the Department secured affidavits from four individuals who averred that during the years at issue, they had been employed by Sahara Mart and were paid, mostly in cash, for each hour worked, and that they knew of other individuals who were, like them, Sahara Mart employees.¹ (See generally Dep't Br. at 10-13 (citations omitted).) The affiants also stated that they never witnessed any destruction of alcohol by Sahara Mart. (See generally Dep't Br. at 14 (citations omitted).) Finally, several of the affiants stated that, after his deposition, Noorihoseini contacted them and attempted to secure their "cooperation" in the event they were contacted by the Department. (See generally Dep't Br. at 16-20 (citations omitted).) One affiant averred that Noorihoseini offered to pay her $1,000 "to cooperate." (See Dep't Br., Ex. 4 ¶¶ 18-20.)

On May 22, 2018, the Department filed its Motion, asserting that Sahara Mart and Noorihoseini were "engaged in a fraudulent scheme to avoid paying taxes" and had committed perjury and witness tampering. (See, e.g., Resp't Proposed Findings and Conclusions ("Dep't Findings") ¶¶ 10-12.) Consequently, the Department requested the Court find them in contempt and sanction them – pursuant to both the Court's inherent power and the power granted to it under Trial Rule 37 – by dismissing the case with prejudice and awarding the Department its attorney fees. (See Dep't Br. at 20-26.) (See also Dep't Findings ¶¶ 1, 3.) As support for its Motion, the Department submitted Noorihoseini's deposition, the affidavits of the four individuals who claimed they were Sahara Mart employees, and the affidavit of one of the Department's attorneys.

The Court conducted a show cause hearing on the Department's Motion on July 12, 2018. On August 6, 2018, the parties filed proposed findings of fact and conclusions of law. Additional facts will be supplied as necessary.

LAW

Contempt

Contempt involves a disobedience that undermines a court's authority, justice, and dignity. Witt v. Jay Petroleum, Inc., 964 N.E.2d 198, 202 (Ind. 2012). There are two types of contempt: direct contempt and indirect contempt.²

Henderson v. Henderson, 919 N.E.2d 1207, 1210 (Ind. Ct. App. 2010). Indirect contempt, which is at issue in this case, involves acts that occur outside the court's presence and personal knowledge. Id. Pursuant to Indiana Code § 34-47-3-3, a person is guilty of indirect contempt when he influences, or attempts to influence, a witness to give or abstain from giving testimony in a case before the court. See IND. CODE § 34-47-3-3 (2018). A party's failure to make or cooperate in discovery may also be regarded as an act of indirect contempt. See Ind. Trial Rule 37(B)(2)(d). These instances of indirect contempt are sanctionable by fines, imprisonment, or the payment of reasonable attorney's fees. See IND. CODE § 34-47-3-6(c) (2018) ; T.R. 37(B).

Discovery

"Discovery is the process by which the parties to an action ascertain the existence of material facts previously unknown." Jacob v. Chaplin, 639 N.E.2d 1010, 1012 (Ind. 1994) (citation omitted). Indiana's discovery rules are designed to allow a liberal exchange of information essential to litigate all relevant issues and to promote settlement. See Whitaker v. Becker, 960 N.E.2d 111, 115 (Ind. 2012) ; Trost-Steffen v. Steffen, 772 N.E.2d 500, 512 (Ind. Ct. App. 2002), trans. denied. Pretrial discovery procedures are intended to " ‘make a trial less a game of blindman's bluff and more a fair contest with the basic issues and facts disclosed to the fullest practicable extent.’ " Whitaker, 960 N.E.2d at 115 (citations omitted).

"Discovery is designed to be self-executing with little, if any, supervision of the court." Trost-Steffen, 772 N.E.2d at 512 (citation omitted). Nonetheless, Trial Rule 37 provides a court with broad latitude to sanction those who "[f]ail[ ] to make or cooperate in discovery[.]" T.R. 37(B). For instance, if a litigant fails to obey a court order to provide or permit discovery, Trial Rule 37 permits a court to treat the disobedience as contempt, prohibit the disobedient party from introducing designated matters into evidence, dismiss the action or proceeding or any part thereof, render a default judgment against the disobedient party, or require the disobedient party to pay the reasonable attorney's fees of his opponent. See T.R. 37(B)(2). Courts have construed the acts of producing forged documents, lying in depositions or in answering interrogatories, soliciting witnesses to lie in their depositions, and destroying evidence, as failures to make or cooperate in discovery under both Indiana Trial Rule 37 and its nearly identical federal equivalent, Federal Rule Civil Procedure 37. See, e.g., Prime Mortg. USA, Inc. v. Nichols, 885 N.E.2d 628, 650-51 (Ind. Ct. App. 2008) (citations omitted); Ramirez v. T & H Lemont, Inc., 845 F.3d 772, 775-76 (7th Cir. 2016) ; Brady v. U.S., 877 F.Supp. 444, 452-54 (C.D. Ill. 1994). See also Fed. R. Civ. P. 37.

Power of the Court

A court has "the inherent power to punish parties in the course of ‘maintaining its dignity, securing obedience to its process and rules, rebuking interference with the conduct of business, and punishing unseemly behavior.’ " City of Gary v. Major, 822 N.E.2d 165, 169 (Ind. 2005) (citing State v. Shumaker, 200 Ind. 623, 157 N.E. 769, 775 (1927) ). See also Prime Mortg., 885 N.E.2d at 651 (stating that " ‘the inherent powers doctrine is most often invoked where a party commits perjury or destroys or doctors evidence’ " (quoting Qantum Commuc'n Corp. v. Star Broad., Inc., 473 F.Supp.2d 1249, 1269 (S.D. Fla. 2007) ) ). Indeed, as the Indiana Supreme Court has explained, a court's...