Ortolivo v. Precision Dynamics International, LLC

Background

During discovery—the information-gathering phase of a lawsuit—Precision Dynamics International, LLC asked Daniel Ortolivo for all tax returns for Ortolivo or a business with which he was affiliated from January 1, 2017, to the present. Ortolivo refused to produce the returns, asserting privilege and privacy protections. He testified that he reported income received from the defendant on tax returns for AAFS, but, following his lawyer’s instruction, did not answer questions about whether AAFS claimed certain deductions.

Court’s Analysis

The court applied Federal Rule of Civil Procedure 26, which generally permits discovery of nonprivileged information that is relevant and proportional to the needs of the case. It concluded that the tax returns were relevant to the question whether Ortolivo was an employee or an independent contractor because deductions, self-employment information, and related financial details could bear on that determination.

Because the case was based on diversity jurisdiction, the court applied California privilege law. Under that law, tax returns receive a qualified privilege, meaning the protection can yield in certain circumstances. The court explained that the protection may not apply if it was intentionally waived, if the lawsuit is fundamentally inconsistent with continuing to claim the protection, or if public policy outweighs confidentiality. The court found that the first and third circumstances were not at issue.

Following prior decisions, the court concluded that the substance of Ortolivo’s claims was not inconsistent with protecting his tax returns. Ortolivo testified that he kept records of business expenses and investments in AAFS and had documentation of those matters. The defendant had not stated that Ortolivo refused to produce those records. The court therefore determined that the relevant information could be obtained through other discovery rather than the tax returns themselves.

Disposition

The court denied Precision Dynamics International, LLC’s request to compel production of the tax returns. The order stated that this ruling was without prejudice to the defendant renewing the request if Ortolivo later took action inconsistent with asserting the tax-return privilege.