Sandberg v. Commissioner of Revenue, C5-85-1129

• Decision Date: 07 March 1986
• Docket Number: No. C5-85-1129,C5-85-1129
• Citation: 383 N.W.2d 277
• Parties: John R. SANDBERG, Relator, v. COMMISSIONER OF REVENUE, Respondent.
• Court: Minnesota Supreme Court

Page 277

383 N.W.2d 277

John R. SANDBERG, Relator, v. COMMISSIONER OF REVENUE, Respondent.

No. C5-85-1129.

Supreme Court of Minnesota.

March 7, 1986.

Syllabus by the Court

1. Under Minn.R.Civ.P. 45.01 and the tax court rules, it was improper for the assistant attorney general to obtain subpoenas against third parties without giving notice to the taxpayer. The conducting of such ex parte discovery stands in opposition to the rules of civil procedure and raises serious constitutional problems.

2. The taxpayer's case, however, was not prejudiced by the assistant attorney general's actions.

3. The tax court applied the correct law in determining that the taxpayer was a domiciliary of Minnesota for tax purposes during the period in question. The tax court's findings were supported by sufficient evidence.

Ford M. Robbins, Minneapolis, for relator.

Hubert H. Humphrey, III, Atty. Gen., Amy Eisenstadt, Sp. Asst. Atty. Gen., Dept. of Revenue, St. Paul, for respondent.

Heard, considered and decided by the court en banc.

YETKA, Justice.

Relator, John R. Sandberg, appeals from a decision of the Minnesota Tax Court finding him a domiciliary of the State of Minnesota during 1979-81 and, thus, responsible for Minnesota income tax for this period. We affirm the tax court.

In December 1983, the state commissioner of revenue reviewed the 1979, 1980, and 1981 non-resident tax returns of relator John R. Sandberg. Determining that during the 3-year period Sandberg had been domiciled in Minnesota, the commissioner issued orders assessing back-taxes for each of the 3 years. ¹ Sandberg has business interests and investments in several states; but, prior to 1978, he was a lifelong resident of Minnesota. ² Following his divorce in 1978, Sandberg purchased, through a sole proprietorship, a new home in Plymouth, Minnesota, in which he, his mother and his daughter lived periodically. Due to personal and business interests, Sandberg traveled extensively during 1979-81, spending approximately 115 days each year in several states and abroad, 50-60 days in Minnesota, and the remainder of each year in Texas. When in Texas, Sandberg lived in Harlingen at hotels and with friends or rented a bedroom and sitting room in Robstown from a friend on a month-to-month basis by oral agreement. He did not have a personal phone number in Texas during the period and received his mail at a post office box.

Sandberg appealed from the commissioner's orders to the Minnesota Tax Court on January 4, 1983. He maintained that the commissioner's determination concerning his domicile was unsupported by the facts and contrary to the law. ³ The commissioner filed a return and answer on January 23, 1984, denying all allegations. On February 15, 1984, the commissioner served interrogatories and a request for the production of documents on Sandberg. Sandberg responded on March 16, 1984, but he objected to the request for production of bank documents as overbroad, and the commissioner deemed certain of Sandberg's responses incomplete. By letter dated March 30, 1984, the commissioner's counsel requested that Sandberg fully answer certain interrogatories and, pursuant to an oral agreement, narrowed the request for bank documents to only those for Sandberg's personal accounts. The letter allowed Sandberg 30 days in which to respond. On April 9, 1984, before the 30-day period had run, the commissioner obtained from the tax court five subpoenas duces tecum ordering production of Sandberg's bank records from two Minnesota financial institutions, records from two insurance agencies, and financial records from VISA. The subpoenas were obtained ex parte, and Sandberg's counsel learned of them either through notification by the institutions subpoenaed or at trial. ⁴

On June 22, 1984, Sandberg moved the tax court for an order directing the commissioner to return all information obtained pursuant to the subpoenas, enter judgment in favor of Sandberg, censor opposing counsel, and award attorney fees and costs. On July 10, 1984, the tax court conducted a hearing at which Sandberg argued that, since he had received no notice of the subpoenas duces tecum for his bank records, the subpoenas were improperly issued and provided the commissioner with wrongfully obtained information that would prejudice Sandberg's case. The tax court denied the motion on July 13, 1984, finding that the rules of civil procedure do not require prior notice to a litigant when a subpoena is directed to a third party. Since these were subpoenas in a civil action and Sandberg had actual notice of the subpoenas within 180 days of their issuance, the court further found that there had been no violation of Minn.Stat. Secs. 13A.02, subd. 3 and 13A.04, subd. 4 (1984) governing the release of financial information to government officials.

The tax court conducted its hearing on Sandberg's original petition on November 20, 1984. At the hearing, Sandberg testified as to his living situations in Minnesota and Texas during 1979-81 and maintained that he was a domiciliary of Texas during the period. Also testifying were Randall Sohn and Thomas Lipinski, friends of Sandberg, and Richard T. Coughlin, general manager at Metal Masters, who stated that they believed Sandberg's place of residency during 1978-81 was Texas. ⁵ At the hearing, Sandberg continued his objection to the admission of evidence obtained from the financial institutions and also objected to the introduction of the insurance documents, arguing that he had no notice of the subpoenas used to obtain the evidence and, therefore, the evidence should not be admitted. The court overruled the objection and admitted the documents.

On March 18, 1985, the tax court confirmed the commissioner's orders, finding that Sandberg was a resident and domiciliary of Minnesota during 1979-81. Sandberg v. Commissioner of Revenue, No. 4031, slip op. (Minn.Tax Ct. Mar. 18, 1985). Although Sandberg claimed that Texas was his domicile during 1979-81, the court found this not to be credible in light of his actions. Employing the factors for determining domicile set forth in Minn. Rules 8001.0300 (1985), the tax court based its findings primarily on Sandberg's living situation in Texas during 1979-81, his ownership and use of his house in Plymouth, and his relationship to his Minnesota businesses. The tax court also considered other personal contacts in the state during the period in question, including his driver's license, vehicle registration and insurance, medical care, personal relationships, and personal financial dealings. Based on these findings, the court affirmed the commissioner's orders and ruled that Sandberg remained a domiciliary of Minnesota during 1979-81, with his entire income for the period of January 1, 1979, through December 31, 1981, subject to Minnesota taxation under Minn.Stat. Sec. 290.17, subd. 2 (1984).

Sandberg moved for a new trial on April 3, 1985, alleging that the court's findings were contrary to the facts and the law and based in whole or in part on evidence obtained in violation of the rules of civil procedure. The court conducted a hearing on April 17, 1985, and denied the motion on May 9, 1985, finding that its order was correct under the law, justified by the evidence, and not based upon improperly admitted evidence.

Sandberg petitioned this court for a writ of certiorari, which was granted on June 13, 1985.

The issues raised on appeal are:

I. Did the tax court commit error in admitting certain documentary evidence?

II. Was the tax court correct in finding that Sandberg was a domiciliary of Minnesota during 1979-81?

Sandberg maintains that, at the November 20, 1984 hearing, the tax court improperly admitted certain documentary evidence consisting of a homeowner's insurance policy application, bank documents, and investigative reports. This evidence was obtained pursuant to the series of subpoenas duces tecum issued ex parte by the tax court. Since he had no notice of the subpoenas, Sandberg argues that the admission of the evidence denied him his right to equal discovery, prejudiced his ability to prepare his case, and was in violation of Minn.R.Civ.P. 45 governing the issuance of subpoenas and Minn.Stat. Sec. 13A.04, subd. 4(c) (1984) regulating the release of financial information to government officials. The commissioner replies that the tax court has the power to vary the rules of civil procedure and also has the explicit statutory authority to issue such subpoenas ex parte. Furthermore, the commissioner argues that even if the documents were improperly obtained, any error committed was not prejudicial.

While Minn.R.Civ.P. 34.03 allows independent action for production of documents against a non-party, the rules of civil procedure also provide:

(1) Every subpoena shall be issued by the clerk under the seal of the court, shall state the name of the court and the title of the action, and shall command each person to whom it is directed to attend and give testimony at a time and place therein specified. The clerk shall issue a subpoena, or a subpoena for the production of documentary evidence or tangible things, signed and sealed, but otherwise in blank, to a party requesting it, who shall fill it in before service.

(2) Subpoenas shall be issued only in connection with a duly noted deposition as set forth in Rule 45.04 or in connection with a hearing or trial as set forth in Rule 45.05. Violation of this provision constitutes an abuse of process, and shall subject the attorney or party to appropriate sanctions or damages.

Minn.R.Civ.P. 45.01. The advisory committee notes explain that the requirements of Rule 45.01, subd. 2 are designed to guard against ex parte discovery:

[Rule 45.01(2) ] makes clear the limits of proper use of subpoenas by attorneys. The Committee is aware of instances in which an attorney obtains a subpoena and then uses it for ex parte discovery or investigation. Such use of the subpoena has never...