United States District Court, D. New Jersey
MEMORANDUM OPINION AND ORDER
N. QURAISHI UNITED STATES MAGISTRATE JUDGE.
matter comes before the Court upon Yang-Sup Cha, Nam-Hee Kim
and Stafford Cha's (collectively, "Defendants")
Motion to Quash Discovery of Personal Income Tax Returns.
Allegations and Procedural History
2016, Anyclo International, Inc., hired Yang-Sup Cha to
assist in incorporating a subsidiary of it in the State of
New York. (Am. Compl. ¶¶ 16-17, ECF No. 25; Answer
to Am. Compl. ¶¶ 16-17, ECF 30.) Plaintiff claims
it wired Defendant Stafford Cha seed money and additional
funds for operating costs and other expenses. (Am. Compl.
¶¶ 18, 24, 32-34.) According to Plaintiff,
"Defendants conspired to make it appear as if Defendant
[Yang-Sup] Cha was following Anyclo International's
directives when i[n] fact Defendants created Anyclo USA as a
corporation owned by one or more of the Defendants . . .
." (Am. Compl. ¶ 30.) Plaintiff alleges Defendants
improperly misappropriated Plaintiff's funds and
improperly withheld "payments received from
third-parties for goods manufactured and delivered by"
Plaintiff. (Am. Compl. ¶ 83.) As part of that claim,
Plaintiff alleges it gave money to Anyclo USA for rental
expenses, later learning that Anyclo USA did not rent a space
at its reputed address and that the entity to which Anyclo
USA was purportedly paying rent, Mojo Moto, LLC, did not own
a space there. (Am. Compl. ¶¶ 69, 106-07, 123.)
Mojo Moto, LLC, is allegedly owned by Defendant Nam-Hee Kim.
(Am. Compl. ¶ 69.)
public accountant, Daniel Cho, was obtained to assist in
establishing Anyclo USA. (Am. Compl. ¶¶ 20-21;
Answer to Am. Compl. ¶¶ 20-21, ECF 30.) On March
27, 2019, Plaintiff served Cho with a subpoena, commanding he
produce "[a]ll communications (electronic and otherwise)
with Yang-Sup Cha, Nam-Hee Kim and Stafford Cha as it relates
to Anyclo USA, Inc. and/or Mojo Moto, LLC" and
"[c]opies of all documents prepared for the benefit of
Yang-Sup Cha, Nam-Hee Kim, Stafford Cha, Anyclo USA, INC.,
and/or Mojo Moto, LLC." (Certification of Gregory J.
Cannon, Esq. Ex. A, at 1, Ex. B, ECF No. 32-1.) Plaintiff
moved before this Court to compel Cho's compliance,
(Notice of Mot. to Compel Daniel Cho, CPA to Comply, ECF 32),
and the Court granted that motion, (Order 2, ECF 33).
now seek "to quash that portion of [the] subpoena duces
tecum served upon Certified Public Accountant Daniel Cho in
which personal tax returns of said individual defendants are
sought." (Mot. to Quash Subpoena 1, ECF 36.) They argue
the Court should not authorize disclosure of personal tax
returns "solely because the credibility of the
defendants may be impeached." (Id. at 3.)
Defendants assert that allowing the disclosure of personal
tax returns for impeachment purposes alone would violate the
Third Circuit's policy as outlined in DeMasi v.
Weiss, 669 F.2d 114, 119 (3rd Cir. 1982) (stating courts
must balance the individual's privacy interest in his or
her tax returns with the need, materiality, and relevance of
the information). (Id. at 2.) Defendants submit
"Plaintiff's own records can be the source of its
prima facie proof of loss," because "Plaintiff
knows how it filled the orders and the invoiced amounts to
Plaintiff's customers." (Id. at 3.)
response, Plaintiff highlights its following allegations: (1)
$397, 758.54 was wired into Anyclo USA's bank account by
customers paying for Plaintiff's goods; (2) Plaintiff
paid Anyclo USA's operational costs, including Yang-Sup
Cha's monthly salary, to Yang-Sup Cha; and (3) Plaintiff
made payments in service of a fake lease through Stafford
Cha's bank account to Mojo Moto, which is owned by
Yang-Sup Cha's wife Nam-Hee Kim. (PL's Opp'n to
Mot. to Quash 6, ECF 37.) Plaintiff contends Defendant
Yang-Sup Cha "appears to have initially utilized
Stafford Cha's bank account, and received $51, 000.00
therein from Plaintiff for purported business expenses and
compensation for the joint business venture," and,
"[g]iven that certain expenses . . . were clearly
fraudulent[, ] ... it is unclear how Stafford Cha and/or
[Yang-Sup] Cha accounted for these funds . . . ."
(Id.) Further, Plaintiff alleges "it is unclear
how [Nam-Hee Kim] accounted for these payments to [Mojo
Moto], which should have issued a K-l for her personal
returns during 2016, 2017, and 2018." (Id. at
submits Defendant Yang-Sup Cha's individual tax returns
are relevant because his "entire defense," that is,
that he retained money from Plaintiff because Plaintiff owed
him additional compensation and reimbursement expenses,
"is based upon an accounting of his personal income and
business expenses . . . ." (Id.) As for Nam-Hee
Kim and Stafford Cha's returns, Plaintiff claims they are
highly relevant because "they claim [the numerous large
payments from Plaintiff and Anyclo USA] [were] bona fide
payments for reimbursements or rental income .. . ."
(Id.) Plaintiff argues Defendants' individual
tax returns "will show how they classified these
payments contemporaneously with the parties'
dealings." (Id.) Plaintiff asserts that
"there is no other method by which to verify whether
Defendants treated the funds in the manner in which they
claim." (Id. at 8.)
did not submit a reply.
Standard for Discovering Individual Tax Returns
DeMasi, the Third Circuit recognized that public
policy favors the non-disclosure of income tax returns
because "Congress has guaranteed that federal income tax
returns will be treated as confidential communications
between a taxpayer and the government," 669 F.2d at 119
(citing 26 U.S.C.A. § 6103), and because confidentiality
removes the pressure taxpayers may otherwise feel to refrain
from reporting all of their income or from taking advantage
of all of the tax-saving measures to which they are entitled,
id. at 120 (citing Fed. Sav. & Loan Ins.
Corp. v. Krueger, 55 F.R.D. 512, 514 (N.D. HI. 1972)).
"A party's income tax returns, even if containing
some relevant financial information, are protectable from
discovery as confidential documents if the party seeking
protection demonstrates good cause to uphold its expectation
of confidentiality, as well as the availability of reliable
financial information from other sources." Farmers
& Merchants Nat. Bank v. San Clemente Fin. Grp. Sec,
Inc., 174 F.R.D. 572, 585 (D.NJ. 1997).
determining whether to compel production of individual tax
returns, this Court employs a two-part test that balances the
individual's interest in confidentiality against the
Federal Rules of Civil Procedure's liberal discovery
policy. Gregory v. Gregory, No. 215CV0320WHWCLW,
2016 WL 6122456, at *11 (D.NJ. Oct. 18, 2016) (citing
Robinson v. Horizon Blue Cross-Blue Shield of New
Jersey, No. 2:12-CV-02981-ES-JAD, 2013 WL 6858956, at *3
(D.NJ. Dec. 23, 2013), ajf'd, No. CIV.A. 12-2981
ES, 2014 WL 3573339 (D.NJ. July 21, 2014), ajf'd sub
nom., Robinson v. Horizon Blue Cross Blue Shield of New
Jersey, 674 Fed.Appx. 174 (3d Cir. 2017); Farmers
& Merchants Nat. Bank, \IA F.R.D. at 585).
"First the Court determines whether the tax returns are
relevant to the litigation"; if the returns are
relevant, then "the objecting party can avoid disclosure
by showing the availability of reliable financial information
from other sources." Id. (citing
Robinson, 2013 WL 6858956, at *3; Farmers
& Merchants Nat. Bank, 174 F.R.D. at 585);
see also United States v. Bonanno Organized Crime Family
of La Cosa Nostra, 119 F.R.D. 625, 627 (E.D.N.Y. 1988)
('"[F]irst, the court must find that the returns are
relevant. . . and second, that there is a compelling need for
the returns because the information contained therein is not
otherwise readily obtainable.' . . . While the party
seeking discovery of the tax returns bears the burden of
establishing relevance, the party resisting disclosure should
bear the burden of establishing alternative sources for the
information." (quoting S.E.C. v. Cymaticolor
Corp., 106 F.R.D. 545, 547 (S.D.N.Y. 1985) (first
alteration in original)).
Defendants' Tax Returns ...