Friday, May 29, 2015
Court of Appeal Holds:
Trial Court Can’t Order Third Parties to Produce Tax Returns
By a MetNews Staff Writer
The Court of Appeal for this district yesterday directed a trial court to scrap its order requiring third parties to produce their tax returns.
Los Angeles Superior Court Judge Holly J. Fujie ordered Elias and Zeina Assaf to produce their individual and corporate federal and state tax returns in a dissolution action between Irlanda Rached and her husband, Victor Chalfoun. Rached contends that Chalfoun sold Power Auto Insurance Services, a community asset, to the Assafs in 2009, without her knowledge or consent, for $1,000, and that the Assafs resold it two years later for more than $2 million.
Fujie observed that the Assafs were “entangled” with Chalfoun and ordered their tax returns to assist in determining “where did the money go.”
Exception Doesn’t Apply
Writing for Div. One, Justice Victoria Chaney said:
“Tax returns are generally protected from compelled production, but an exception exists where they belong to a party to marital dissolution proceedings. Although that exception also permits discovery of the tax information of a corporation closely held by a party, it does not apply to unrelated third parties.”
She said that under the California Supreme Court’s 1993 decision in Schnabel v. Superior Court, production of tax returns will be compelled “where a ‘public policy greater than that of confidentiality of tax returns is involved.’ ” Chaney noted that the “exception is narrow, and may be invoked only in favor of a policy that has been expressly declared by the Legislature.”
While the appeals court directed that the portion of the order that the Assafs produce tax returns be vacated, Cheney appeared to indicate that the Assafs could be required to turn over portions of the tax forms relating to transactions with Chalfoun. She said:
“[T]he Assafs were not required to produce tax returns containing information pertaining to persons or entities other than Chalfoun absent a specific showing of relevance or need. Rached made no such showing.”
Business Record Production
Cheney went on to say:
“We will assume for the sake of argument that Rached established that Chalfoun engaged in a concerted and multifarious effort to dispose of and conceal extensive community assets and that the Assafs conspired in the effort, knowingly receiving community assets and later transferring them to third parties (or back to Chalfoun). Those circumstances would support the trial court’s order for disclosure of the Assafs’ business records, but that discovery has already been produced and is not at issue here.
“The Assafs’ tax information pertaining to further-removed third parties is not directly relevant to their conspiracy with Chalfoun.”
Cheney said that Fujie speculated as what “may” be in the tax returns, and explained:
“Although this may meet the general test for discoverability of business records, it does not meet the direct relevance test necessary for disclosure of nonparty tax records.”
The case is Assaf v. Superior Court, Rached RPI, B260319.
Andrew F. Kim and Robert M. Ungar represented the Assafs and Adam K. Obeid and Jihad M. Smaili of Smaili & Associates acted for Rached.
Copyright 2015, Metropolitan News Company