ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
FRANCINA A. DLOUHY GREGORY F. ZOELLER
J. DANIEL OGREN ATTORNEY GENERAL OF INDIANA
FAEGRE BAKER DANIELS LLP JESSICA R. GASTINEAU
Indianapolis, IN WINSTON LIN
DEPUTY ATTORNEYS GENERAL
Indianapolis, IN
THEODORE R. BOTS
FILED
SCOTT L. BRANDMAN
Nov 28 2016, 12:14 pm
JENNY A. AUSTIN
BAKER & MCKENZIE LLP CLERK
Indiana Supreme Court
New York, NY Court of Appeals
and Tax Court
IN THE
INDIANA TAX COURT
THE UNIVERSITY OF PHOENIX, INC., )
)
Petitioner, )
)
v. ) Cause No. 49T10-1411-TA-00065
)
INDIANA DEPARTMENT OF )
STATE REVENUE, )
)
Respondent. )
ORDER ON RESPONDENT’S VERIFIED MOTION FOR PROTECTIVE ORDER
FOR PUBLICATION
November 28, 2016
WENTWORTH, J.
The University of Phoenix, Inc. (“UoPX”) has appealed the Indiana Department of
State Revenue’s assessment of additional gross income tax and interest for the period
ending on August 31, 2009, through and including August 31, 2011 (the “period at
issue”). The matter is currently before the Court on the Department’s Verified Motion for
Protective Order. The Court denies the Department’s Motion.
FACTS AND PROCEDURAL HISTORY
On November 7, 2014, UoPX initiated an original tax appeal alleging that the
Department’s assessment of additional gross income tax and interest for the period at
issue ran afoul of the sourcing provisions for service revenue under Indiana Code § 6-3-
2-2. More specifically, UoPX claimed that the Department erred in computing its
alleged tax liability by sourcing some of its online tuition service revenue to Indiana
based on a market or customer-based test despite the fact that Indiana Code § 6-3-2-2
required that the revenue be sourced based on the costs of performance test.
As the litigation continued, the parties cooperatively used a variety of discovery
tools to develop their respective positions. By October 21, 2016, however, the parties’
cooperative efforts broke down and the Department filed a discovery enforcement
motion that asked the Court to either bar or reschedule an October 28, 2016,
subpoenaed deposition of the former Commissioner of the Indiana Department of State
Revenue, Michael Alley. Although the Court quashed the subpoena, it advised the
parties that UoPX could depose Mr. Alley at a later date.
On November 1, 2016, UoPX sent a second subpoena to Mr. Alley, requesting
that he appear for a deposition on November 29, 2016. UoPX sought to depose Mr.
Alley on the following topics (which are referred to hereafter as the “deposition topics”):
1) the Tax Competitiveness and Simplification Report of
September 2014 (the “Report”), Mr. Alley’s September 29, 2014,
presentation on the Report, and Section 14 of House Bill 1349;
2) the Department’s “position and interpretation of Indiana’s ‘costs-
of-performance’ sourcing regime generally and how it should be
applied to UoPX specifically[;]”
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3) “the Department’s involvement in the studies and reports, and
specifically the Department’s views, comments and approval of
the statements describing Indiana’s ‘cost[s] of performance’
sourcing regime pursuant to [Indiana Code] § 6-3-2-2(f)[;]” and
4) “the Department’s involvement in the studies and reports, and
specifically the Department[’]s views, comments and approval of
the statements regarding the replacement of Indiana’s ‘cost[s] of
performance’ sourcing with market or customer based
sourcing.”
(See Pet’r Resp. Resp’t V. Mot. Protective Order (“Pet’r Resp. Resp’t V. Mot.”) ¶¶ 3, 11
(referring to Pet’r Resp. Resp’t V. Mot. Protective Order or Alternative Quash Dep. But
Allow Extension Of Time To Take Deps. (“Pet’r Resp.”) ¶¶ 9-11).) On November 10,
2016, the Department responded with its Verified Motion for Protective Order, asserting
that a protective order must be issued to protect Mr. Alley from a “burdensome and
oppressive” deposition. (See Resp’t V. Mot. Protective Order (“Resp’t V. Mot.”) ¶¶ 10-
11.) On November 18, 2016, UoPX filed its response and on November 22, 2016, the
Department filed its reply consistent with the Court’s expedited briefing schedule.
Additional facts will be supplied as necessary.
LAW
Discovery, the process by which litigants ascertain the existence of material facts
previously unknown, is designed to allow a liberal exchange of information essential to
litigate all relevant issues and to promote settlement. Popovich v. Indiana Dep’t of State
Revenue, 7 N.E.3d 406, 411 (Ind. Tax Ct. 2014). “[T]oday’s 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.’” Id.
(quoting Whitaker v. Becker, 960 N.E.2d 111, 115 (Ind. 2012)).
“Discovery is designed to be self-executing with little, if any, supervision of the
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court.” Trost-Steffen v. Steffen, 772 N.E.2d 500, 512 (Ind. Ct. App. 2002), trans.
denied. In the event the discovery process breaks down or is inadequate, however,
Indiana’s trial rules provide that the parties may request court intervention to resolve
their disputes. Specifically, Indiana Trial Rule 26(C) states that “[u]pon motion by any
party or by the person from whom discovery is sought, and for good cause shown, the
court in which the action is pending . . . may make any order which justice requires to
protect a party or person from annoyance, embarrassment, oppression, or undue
burden or expense[.]” Ind. Trial Rule 26(C).
ANALYSIS
The Department has asked the Court to issue a protective order for the
November 29, 2016, deposition of Mr. Alley and quash the related subpoena pursuant
to Indiana Trial Rule 26(C). The Department claims that the protective order will shield
Mr. Alley from annoyance, oppression, and the undue burden and expense of the
deposition because UoPX seeks information not relevant to the issues in this case.
(See Resp’t V. Mot. ¶¶ 7, 10; Resp’t Reply Supp. V. Mot. Protective Order (“Resp’t
Reply”) ¶¶ 1, 7.) The Department also claims a protective order is warranted because
UoPX has already deposed three other competent witnesses,1 obtained testimony on
the deposition topics, and admitted it would not question Mr. Alley about the actual
issues in this case. (See Resp’t V. Mot. ¶¶ 9-10; Resp’t Reply ¶¶ 1, 3-5.) Moreover, the
Department claims that the issuance of a protective order will signal to UoPX that the
Court does not condone its insinuation that Mr. Alley’s status as a retiree makes him
1
In late October of 2016, UoPX deposed 1) Steven Chang, the Department’s auditor that
conducted UoPx’s audit, 2) Mandi Shawarira, Mr. Chang’s supervisor and “the [Department’s]
Deputy Director of Enforcement, in charge of out-of-state auditors generally[,]” and 3) LuAnn
Pelsor, “the [Department’s] Technical Manager for the Enforcement Division [who] oversees the
Audit Review and Computer Audit Team.” (Resp’t V. Mot. Protective Order ¶¶ 2-3.)
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readily available for depositions because “[s]ubpoenas should not be frivolously served
on high-ranking officials[.]” (Resp’t V. Mot. ¶ 10.) (See also Resp’t Reply ¶ 6.)
“‘[R]elevancy for purposes of discovery is not the same as relevancy at trial; a
document [or testimony] is relevant to discovery if there is the possibility that the
information sought may be relevant to the subject[-]matter of the action.’” Popovich, 7
N.E.3d at 413 (citation omitted). UoPx’s petition indicates that one of the issues in this
case is whether, with respect to sourcing UoPX’s online tuition service revenue during
the period at issue, Indiana Code § 6-3-2-2 allowed for the use of a market or customer-
based sourcing test or mandated the use of the costs of performance test alone. (See
Pet’r Original Tax Appeal Pet. Set Aside Final Determination Ind. Dep’t State Revenue
& Pet. Enjoin Collection of Tax ¶¶ 45-120.) While Mr. Alley was not the Commissioner
during the period at issue, his September 29, 2014, presentation on the Report, the
Report itself, and House Bill 1349 contain information on both tests. (See, e.g., Pet’r
Resp. ¶¶ 7-8, Ex. A at 38-39, Ex. B at 5; Pet’r Resp. Resp’t V. Mot. ¶ 11 (referring to
Pet’r Mot. Compel Resps. Discovery Reqs. (“Pet’r Mot. Compel”) ¶ 5).) The deposition
topics, therefore, are relevant to the subject-matter in this case for purposes of
discovery.2
Moreover, it is reasonable to assume that Mr. Alley, given his unique status as
the former Commissioner, could provide additional information on the identified
deposition topics. Indeed, the documentation before the Court indicates that additional,
rather than redundant, information on the deposition topics could be elicited from Mr.
2
This, however, does not mean that any information Mr. Alley provides will automatically be
admissible at trial. See, e.g., Popovich v. Indiana Dep’t of State Revenue, 7 N.E.3d 406, 413
(Ind. Tax Ct. 2014) (stating that the test for relevancy during the discovery process and at trial
differs).
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Alley because the Department’s witnesses provided little information on the deposition
topics. (See Resp’t Reply ¶¶ 3-4; Pet’r Mot. Compel ¶ 51.) Finally, although Indiana
caselaw recognizes that high-ranking government officials “‘should not ordinarily be
compelled to testify unless it has been established that the testimony to be elicited is
necessary and relevant and unavailable from a lesser ranking officer[,]’” Hunt v. State,
546 N.E.2d 1249, 1252 (Ind. Ct. App. 1989) (citation omitted), trans. denied, Mr. Alley is
no longer at the helm of the Department’s ship as was the high-ranking official in Hunt.
For these reasons, the Department is not entitled to the protective order that it seeks on
behalf of Mr. Alley.
CONCLUSION
“Given that the scope of discovery is broad and highly dependent on the facts of
each case, the Court must exercise discretion in determining what discovery is
necessary and what is vexatious.” Popovich, 7 N.E.3d at 413 (citations omitted). The
Court does not find UoPX’s request to depose Mr. Alley vexatious. Accordingly, the
Department’s Motion is DENIED. Consistent with the requirements of Indiana Trial Rule
37(A)(4), the Court will schedule a hearing regarding the propriety of an award of
expenses by separate cover.
SO ORDERED this 28th day of November 2016.
Martha Blood Wentworth
Judge, Indiana Tax Court
Distribution: Francina A. Dlouhy, J. Daniel Ogren, Theodore R. Bots, Scott L.
Brandman, Jenny A. Austin, Jessica R. Gastineau, Winston Lin.
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