Commercial Division Blog

Posted: August 1, 2022 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Category Commercial Division Justices

Tax Returns Not Discoverable Where Party Failed to Show Information is Unavailable from Other Sources

On July 14, 2022, Justice Reed of the New York County Commercial Division issued a decision in Atsco Footwear Holdings, LLC v. KBG, LLC, 2022 NY Slip Op 50657(U) holding that a party was not entitled to tax returns in discovery even where relevant unless the party shows that the information was not available from other sources, stating:

CPLR 3101 requires full disclosure of all matter material and necessary in the prosecution or defense of an action. The phrase "material and necessary" is "to be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity Kapon v Koch, 23 NY3d 32, 38, 988 N.Y.S.2d 559, 11 N.E.3d 709 [2014]). The test is one of usefulness and reason" (Allen v Crowell- Collier Publishing Co., 21 NY2d 403, 235 N.E.2d 430, 288 N.Y.S.2d 449).

First, some of plaintiff's requests seek corporate tax filings and bank statements from defendant and others. Courts require the party seeking production of tax returns or sensitive [*2] financial information to make a strong showing of necessity and demonstrate that the information contained in the returns is unavailable from other sources (see Gordon v Grossman, 183 AD2d 669, 670, 584 N.Y.S.2d 54 [1st Dept 1992]; ICC Chem. Corp. v Klein, 243 AD2d 402, 403, 663 N.Y.S.2d 552 [1st Dept 1997]). Courts have denied motions to compel disclosures of tax returns where the moving party failed to sufficiently demonstrate the information contained in the returns was unavailable from other sources (Williams v New York City Hous. Auth., 22 AD3d 315, 316, 802 N.Y.S.2d 55 [1st Dept 2005]). Plaintiff argues that defendant's tax filings and bank statements are material and necessary because they constitute information as to defendant's finances and accounting practices during the time period for which plaintiff is challenging defendant's calculation of net gross profit. Defendant argues that it should not be required to produce tax filings and bank statements because plaintiff has not made an adequate showing that defendants' financial information could not be obtained from other sources (see Pinnacle Sports Media & Ent., LLC v Greene, 154 AD3d 601, 601-02, 63 N.Y.S.3d 343 [1st Dept 2017]). Here, although plaintiff contends that the tax returns are necessary, plaintiff does not demonstrate that the information is unavailable from other sources.

Additionally, the court will not compel disclosure where movant has not sufficiently shown a need for responses to its more burdensome requests. The Court of Appeals [*3] has made clear that "competing interests must always be balanced; the need for discovery must be weighed against any [**2] special burden to be borne by the opposing party" (O'Neill v Oakgrove Const., Inc., 71 NY2d 521, 529 [1988]). The court deems plaintiff's requests to be relevant and material, except for the requests for tax returns and bank statements/. For these reasons, the motion to compel will be granted in part.

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