Whether The Disclosure of Tax Returns and Tax Filings Are Permitted
SUPERIOR COURT OF NEW JERSEY
DOCKET NO. A-2639-20
CHARLES J. PARKINSON,
Submitted by New Jersey Civil Lawyer, Jeffrey Hark
Argued October 12, 2021 – Decided October 27, 2021
This matter was on appeal from an interlocutory order of the Superior Court of New Jersey, Law Division, Union County.
The issue in this case was whether the disclosure of tax returns and tax filings are permitted. The court has enforced them as confidential pursuant to a rigorous set of standards but there are exceptions. A civil litigant can only obtain an opposing party’s tax filing through discovery by demonstrating to the court the requested documents meet a heightened standard. The standard requires (1) the filings are relevant to the case; (2) there is a “compelling need” for the documents because the information likely to be contained within them is “not otherwise readily obtainable” from other sources; and (3) disclosure would serve a “substantial purpose.”
Plaintiff worked as a full-time plant manager at Diamond Chemical Co. from 2008 until 2017. Diamond Chemical was a producer of cleaning products and supplies. Plaintiff filed a complaint against defendant alleging he was wrongfully terminated because of his age. Defendant responded by denying all allegations and state the plaintiff was fired for “legitimate, non-discriminatory reasons.” “His performance had been subpar for some period of time and was continuing to deteriorate.” Counterclaims were alleged by defendants which plaintiff wrongfully caused harm to the company in two ways. First, they claimed plaintiff allowed his plant to manufacture defective products and was inattentive to his duties which caused up to $400,000 damages or more in sales. Second, defendants claim plaintiff breached his contractual obligation by giving services to a competitor of the company for several months. Plaintiff denied both claims.
In this case, plaintiff sought in discovery the tax filings of his former employer and the president of the company and the company’s financial statements from prior years before. Plaintiff argued these records are likely to contain information that could support his wrongful discharge case. These documents could also help defend against counterclaims alleging that plaintiff caused sustain financial losses. Defendants refused to hand over the documents and a motion practice ensued to resolve the dispute. The court found the plaintiff satisfied the Ullmann test (the three requirements stated above) however, the trial court did not make sufficient findings applying the heightened standard and the case was remanded back down.
The court applied a differential scope of review. The court concluded the trial court’s abbreviated oral ruling did not adequately analyze the requirements of Ullmann as they pertain to this case and misapplied its discretion. The oral opinions were unfortunately too conclusory in addressing the questions of relevance and compelling need, The rulings did not mention or analyze the important facet of whether the information within the tax filings could be readily obtained from other sources. Nor did the opinions discuss whether a substantial purpose would be achieved by disclosure. The court noted the trial court did not, as Ullmann recommends, examine the tax records in camera to assess whether the records contain relevant information and, if so, whether partial disclosure would suffice. Finally, the court held, “trial court’s rulings lead us to conclude that in camera review of Diamond Chemical’s financial statements would be beneficial and fairer to both parties. Consequently, we order such in camera review of those non-tax records be undertaken as well. The trial court in its discretion may order defense counsel to submit a privilege log to aid it in the exercise.” The matter is vacated without prejudice and remanded.
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