Popovich v. Ind. Dep't of State Revenue

• Decision Date: 18 September 2014
• Docket Number: No. 49T10–1010–TA–53.,49T10–1010–TA–53.
• Parties: Nick POPOVICH, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

17 N.E.3d 405

Nick POPOVICH, Petitioner

v.INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T10–1010–TA–53.

Tax Court of Indiana.

Sept. 18, 2014.

James K. Gilday, Gilday & Associates, P.C., Indianapolis, IN, Attorney for Petitioner.

Gregory F. Zoeller, Indiana Attorney General, John P. Lowrey, Deputy Attorney General, Indianapolis, IN, Attorneys for Respondent.

Opinion

WENTWORTH

, J.

This matter concerns Nick Popovich's motion for default judgment, costs, and attorney's fees as sanctions for the Indiana Department of State Revenue's purported spoliation of evidence and discovery abuses. The Court denies Popovich's motion.

BACKGROUND FACTS

On January 10, 2005, Popovich signed his 2003 Indiana Full–Year Resident Individual Income Tax Return, placed it with a mailing insert into an envelope, sealed the envelope, and directed a temporary employee to mail it to the Department. (See Pet'r Mot. Trial Rule 37

Sanctions, Incl. J. & Fees (“Pet'r Mot. Sanctions”), Ex. A ¶¶ 7–8, Ex. B at 2–6.) Popovich expected the employee to mail the return certified, return receipt requested, but she sent it through the regular U.S. mail. (See Pet'r Mot. Sanctions, Ex. A ¶ 9.)

Sometime that same month, Popovich's ex-wife directed her employee to mail her 2003 Indiana Full–Year Resident Individual Income Tax Return to the Department.¹ (See Pet'r Mot. Sanctions, Ex. C ¶ 6, Ex. D ¶¶ 2–3.) On February 1, 2005, the employee mailed the return to the Department certified, return receipt requested, number 7001 2510 0004 5406 1415. (See Pet'r Mot. Sanctions, Ex. D ¶ 3.) The employee subsequently superimposed a copy of the return receipt number onto a copy of the return and mailed that document to Popovich's ex-wife. (See Pet'r Mot. Sanctions, Ex. C ¶ 7, Ex. D ¶ 5.)

Thereafter, the Department audited Popovich. On January 28, 2008, the Department issued Proposed Assessments against him for additional income tax, interest, and penalties for the 2003 through 2005 tax years. Popovich filed a protest. During the Department's protest hearing on March 27, 2009, Popovich asked to see his 2003 transmittal envelope and certain other documents because he believed that the 2003 Proposed Assessment was untimely and thus invalid. (See Pet'r Mot. Sanctions at 3–4.) The hearing officer agreed to notify Popovich once the envelope was retrieved from storage. (See Pet'r Mot. Sanctions at 4.)

On April 27, 2009, Popovich sent a letter to the hearing officer inquiring about the retrieval of his 2003 transmittal envelope, but the hearing officer did not respond. (See Pet'r Reply Mot. Compel, Ex. R at 3; Pet'r Mot. Sanctions at 4.) The Department issued a Letter of Findings on August 3, 2010, explaining that the 2003 Proposed Assessment was issued timely because Popovich's 2003 transmittal envelope showed that his return was mailed on February 1, 2005. (See Pet'r Pet., Ex. A at 4; Pet'r Reply Mot. Compel, Ex. R at 3.)

On October 4, 2010, Popovich initiated an original tax appeal that challenged, among other things, the timeliness of the Department's 2003 Proposed Assessment against him. (See Pet'r Pet. ¶¶ 10–13.) Popovich subsequently served the Department with his first set of discovery requests, specifically seeking the production of his 2003 through 2005 transmittal envelopes. (See Pet'r Mot. Compel, Ex. A at 58–60.) On July 8, 2011, the Department produced photocopies of a mailing insert and a transmittal envelope bearing the certified mailing number of 7001 2510 0004 5406 1415 indicating a February 1, 2005, mailing date. (See Pet'r Mot. Sanctions, Ex. E.) In addition, the Department explained that it could not produce Popovich's 2004 and 2005 transmittal envelopes because it did not have them.² (See Pet'r Mot. Compel, Ex. A at 58–60.)

On August 26, 2011, Popovich asked the Department to arrange a time for him to inspect the originals of his 2003 through 2005 Indiana tax returns and their transmittal envelopes because he suspected that the Department had produced his ex-wife's 2003 transmittal envelope in error. (See Pet'r Mot. Compel, Ex. B at 1, 8–9; Hr'g Tr. at 41

–42, 49.) Popovich did not inform the Department of his suspicion, but instead attempted to “get to the bottom” of things by using different discovery tools. (See Hr'g Tr. at 42 –46.) As a result, about two weeks later, Popovich sent the Department a letter to renew his request to inspect. (See Pet'r Mot. Compel, Ex. D at 1.) The Department responded on September 26, 2011, explaining that Popovich could inspect the original documentation when it had finished collecting it. (See Pet'r Mot. Compel, Ex. E.) Four days later, Popovich questioned the delay, explaining that the Department had provided him with copies of the documents just two months before. (See Pet'r Mot. Compel, Ex. F at 1, 3.)

On October 21, 2011, the Department sent Popovich a letter stating that while he could inspect his tax returns, it did not have any of the transmittal envelopes. (See Pet'r Mot. Compel, Ex. G.) After Popovich inspected the returns, he sent the Department a letter inquiring as to the whereabouts of the 2003 transmittal envelope produced in response to his first set of discovery requests on July 8, 2011. (See Pet'r Sec. Mot. Compel, Ex. F.)

On November 18, 2011, Popovich served the Department with his second set of discovery requests, seeking to discover information about the Department's general record retention policy and his 2003 transmittal envelope. (See generally Pet'r Mot. Sanctions, Ex. G.) The Department responded that its record retention policy did not require it to keep transmittal envelopes, but it had elected to retain Popovich's 2003 transmittal envelope. (See Pet'r Mot. Sanctions, Ex. H at 6–7.) The Department further explained that while it did not maintain a record of the dates that it physically received income tax returns, the postmark date on Popovich's 2003 transmittal envelope indicated that the return was filed on February 1, 2005. (See Pet'r Mot. Sanctions, Ex. H at 16–17.) Lastly, the Department stated that it could not identify which of its employees had handled Popovich's 2003 transmittal envelope because it did not maintain those types of records. (See Pet'r Mot. Sanctions, Ex. H at 18–20.)

On December 30, 2011, the Department supplemented its responses to Popovich's second set of discovery requests by presenting affidavits from a Manager in its Tax Administration and Support Division and from a Program Supervisor in its Legal Division. (See generally Pet'r Mot. Sanctions, Ex. J.) The Manager averred that his review of copies of Popovich's tax returns and a copy of the 2003 transmittal envelope indicated that the Department had retained the items consistent with its normal and customary procedures. (See Pet'r Mot. Sanctions, Ex. J at Supp. Ex. AA at 1–2 ¶¶ 6–9.) The Program Supervisor stated that when she first reviewed the Department's Returns Processing System database, it indicated that the Department received Popovich's 2003 tax return on February 7, 2005, but she corrected it to reflect the date on the 2003 transmittal envelope, February 1, 2005.³ (See Pet'r Mot. Sanctions, Ex. J at Supp. Ex. AA at 31 ¶¶ 7–12.)

In the meantime, Popovich had arranged to depose the Department's previously designated 30(B)(6) witness on January 6, 2012, and issued a Subpoena Duces Tecum to the witness requesting that he bring the original of the 2003 transmittal envelope and certain other original documents to the deposition. (See Pet'r Sec. Mot. Compel, Exs. A–C.) The Department sent an e-mail less than 24–hours before the deposition, however, indicating that it would not allow the original documents off its premises. (See Pet'r Sec. Mot. Compel, Ex. D.) When the Department's witness indicated during the deposition that he did not bring any of the requested original documents with him, Popovich adjourned the deposition. (See Pet'r Mot. Sanctions at 13–14.) Shortly thereafter, the Department advised Popovich that he could inspect the original of the 2003 transmittal envelope later that day. (See Pet'r Mot. Sanctions, Ex. L at 1–2, Ex. M at Supp. Ex. Q ¶ 6; Pet'r Sec. Mot. Compel, Ex. H at 2.) Popovich inspected the transmittal envelope, but did not tell the Department that he believed the envelope was not his own. (See Pet'r Mot. Sanctions at 14, Ex. K; Hr'g Tr. at 46

.)

On February 2, 2012, Popovich sent the Department a letter to follow-up regarding its previous promise to supplement its responses to his second set of discovery requests. (See Pet'r Mot. Sanctions, Ex. L.) The Department responded on February 7, 2012, stating that it had adhered to its policies and procedures in retaining Popovich's 2003 transmittal envelope, which it located on January 5, 2012. (See Pet'r Mot. Sanctions, Ex. M at 7–10, 13.) Shortly thereafter, the Court granted the Department's motion for an immediate stay of all discovery. As a result, Popovich's depositions of additional 30(b)(6) witnesses, which the parties had agreed to conduct on February 14, 2012, did not take place.

On February 22, 2012, Popovich filed this Motion for Trial Rule 37

Sanctions, Including Judgment and Fees, requesting an entry of default judgment and an award of all litigation costs, claiming that the Department had purposefully destroyed, mutilated, or lost his 2003 transmittal envelope and obstructed discovery. The Court held a hearing on July 31, 2014. Additional facts will be supplied as necessary.

LAW

The Court may impose a variety of sanctions pursuant to either Indiana Trial Rule 37

or its inherent authority to deter litigants and their attorneys from engaging in spoliation and to provide relief to aggrieved litigants. See

Gribben v. Wal–Mart Stores, Inc., 824 N.E.2d 349, 351 (Ind.2005) (discussing the imposition of sanctions under Trial Rule 37 ); Prime Mortg. USA, Inc. v. Nichols, 885 N.E.2d 628, 650–51 (Ind.Ct.App.2008) (discussing the inherent power of courts to impose sanctions). The Court's imposition of sanctions pursuant to its inherent...