GARY L. SHARPE, Senior District Judge.
Plaintiffs Thomas Fedele, Matthew Anderson, Gregory Aurigemma, Arturo F. Ramirez-Calle, and Alec Zef bring this action against defendants Marianne Harris, Kiaran Johnson-Lew, Mary Starr, Richard Ernst, Jamie Woodward, Honora Manion, Nancy Williams, Edward Chaszczewski, Richard Arnold, Argiroula O'Leary, Victor Vasta, Jr., Todd Wynne, and David Savoie pursuant to 26 U.S.C. § 7431, alleging violations of the federal tax confidentiality statute.
In late 2010, an investigation conducted by the New York State Department of Tax and Finance's (hereinafter "the Department") Deputy Inspector General revealed that certain Department employees were claiming excessive job-related expense deductions on their New York State income tax returns. (Defs.' Statement of Material Facts (SMF) ¶ 21, Dkt. No. 128, Attach. 2.) Vasta, an investigative auditor for the Deputy Inspector General, notified Arnold, an Audit Division tax technician, of the suspicious deductions that possibly violated the law and the employee code of conduct. (Id. ¶¶ 16, 18, 23, 61-62.) Chaszczewski, Arnold's superior in the Audit Division, thought these large deductions for job expenses were suspect because state employees were usually reimbursed for most job-related expenses. (Id. ¶¶ 25-26.) As such, Arnold notified Woodward, then Acting Commissioner of the Department, who directed the Audit Division to conduct an audit evaluating whether Department employees were complying with income reporting obligations. (Id. ¶¶ 27-28.)
Accordingly, the Audit Division conducted a Department-wide audit of employees who deducted more than $5,000 in non-reimbursed job expenses with no apparent explanation. (Id. ¶¶ 35, 38.) During the screening process, if an employee filed a joint tax return with a spouse, Arnold looked at the spouse's occupation to see if it provided an apparent explanation for the claimed deduction. (Id. ¶ 39.) If the spouse's occupation did so, that employee was not selected for audit. (Id.) Ultimately, fifty-six employees were audited based on this criteria. (Id. ¶ 40.)
Plaintiffs are five current or former employees of the Department's Criminal Investigations Division who were audited. (Id. ¶¶ 1, 4-7, 44.) Upon receiving audit inquiries, plaintiffs refused to provide documentation to support their claimed job-related expenses. (Id. ¶ 45.) Accordingly, Audit Division employees accessed federal tax information through the Federal Transcript Delivery System (TDS) to verify undocumented deductions.
During the course of the audit, Arnold kept supervisors apprised of the audit's progress by preparing and circulating a spreadsheet containing information from all fifty-six employee's state income tax returns. (Id. ¶¶ 49-50.) Plaintiffs' TDS information was accessed after Arnold created the spreadsheet, and it was never viewed by Arnold. (Id. ¶¶ 86-87.) Although periodic updates to the spreadsheet resulted in various versions, none of the versions contained federal tax information. (Id. ¶ 51.
Arnold sent the spreadsheet to Woodward and other Audit Division staff, including Manion. (Id. ¶ 52.) Arnold also sent the spreadsheet to Johnson-Lew, the Director of Human Resources, so that she could update or correct job-title information. (Id. ¶¶ 9, 53.) Given the potential disciplinary issues involved with overstating deductions, Chaszczewski and Arnold also shared information regarding the audit program, including the spreadsheet, with Wynne and Savoie, the Director and Assistant Director of Labor Relations, respectively. (Id. ¶¶ 19-20, 69-73.
Plaintiffs originally commenced this case in the United States District Court for the Eastern District of New York, seeking compensatory and punitive damages. (See generally Compl.) Thereafter, the matter was transferred to this District. (Dkt. No. 27 at 16; Dkt. No. 28). The action initially included additional claims brought pursuant to 42 U.S.C. § 1983 and New York State Tax Law § 697(e). (Compl. at 4, 11-12.) On November 20, 2014, the court dismissed the claims brought pursuant to § 1983 based on the Eleventh Amendment and plaintiffs' failure to plead defendants' personal involvement in the alleged constitutional violations, (Dkt. No. 45 at 10-16, 19), and later dismissed the state tax claims with plaintiffs' consent, (Dkt. No. 76). A long and contentious discovery process followed, (see generally Dkt. Nos. 77-127), which spawned defendants' pending motion for summary judgment, (Dkt. No. 128), and plaintiffs' pending cross-motion for sanctions, (Dkt. No. 145).
Where a party has failed to obey an order to provide discovery, the court has discretion to issue a variety of orders, including striking the pleadings and entering a default judgment against the disobedient party. See Fed. R. Civ. P. 37(b)(2)(A). The use of these harsh sanctions is limited to cases involving "willfulness, bad faith, or any fault" of the disobedient party. Societe Internationale Pour Participations Industrielles Et Commerciales, S. A. v. Rogers, 357 U.S. 197, 212 (1958).
The standard of review pursuant to Rule 56 of the Federal Rules of Civil Procedure is well established and will not be repeated here. For a full discussion of the standard, the court refers the parties to its decision in Wagner v. Swarts, 827 F.Supp.2d 85, 92 (N.D.N.Y. 2011), aff'd sub nom. Wagner v. Sprague, 489 F. App'x 500 (2d Cir. 2012).
Plaintiffs argue that defendants' answer
On October 24, 2016, Magistrate Judge Christian F. Hummel ordered defendants to provide responses to plaintiffs' requests numbered 1, 3, 5, 7, 8, 9, and 10 in their second document request. (Dkt. No. 120, Attach. 4; Dkt. No. 127.) The transcript of the oral arguments and bench rulings preceding Judge Hummel's Memorandum-Decision & Order demonstrate that defendants were not simply ordered to produce the relevant documents — as plaintiffs would have the court believe — but rather to produce such documents or formally state that such documents were not in their possession or had already been produced. (Dkt. No. 150, Attach. 12 at 23-46.) Defendants' subsequent response complied with Judge Hummel's directive: it formally stated that certain documents were previously produced or not in defendants' possession and produced documents that were discovered upon further review. (See generally Dkt. No. 150, Attach. 5 at 3-6.)
Plaintiffs fail to explain how any sanction would be just or equitable in light of defendants' compliance with Judge Hummel's order. Accordingly, plaintiffs' motion, (Dkt. No. 145), is denied.
The federal tax return confidentiality statute provides that "[r]eturns and return information shall be confidential," and, with limited exceptions, "no officer or employee of any State . . . shall disclose any return or return information obtained by him in any manner in connection with his service as such an officer or an employee." 26 U.S.C. § 6103(a)(2). The enforcement mechanism for this statute is found in § 7431, which states:
26 U.S.C. § 7431(a)(2). Thus, the elements of a cause of action for willful or negligent inspection or disclosure of a taxpayer's tax return or return information under § 7431 are: (1) unauthorized disclosure; (2) made either knowingly or negligently; and (3) in violation of § 6103. See Weiner v. IRS-Collections Div., 789 F.Supp. 655, 656 (S.D.N.Y. 1992), aff'd sub nom. Weiner v. I.R.S., 986 F.2d 12 (2d Cir. 1993).
Here, defendants argue that they are entitled to summary judgment because plaintiffs have failed to identify any evidence indicating that they disclosed any return or return information. (Dkt. No. 128, Attach. 1 at 11-17.) In response, plaintiffs primarily offer unsupported and disjointed assertions that defendants' motion should be denied because it relies on "pure speculation" and there was no need to disclose any federal tax information. (Dkt. No. 145, Attach. 3 at 10-12
Plaintiffs' claim that defendants violated § 6103: (1) "[o]n or about November 30, 2011, . . . by disclosing [p]laintiffs['] confidential tax return information to the Human Resources . . . Department," (Compl. ¶ 84), and (2) "[o]n or about June 5, 2012, . . . by disclosing [p]laintiffs['] confidential tax return information to . . . Labor Relations," (id. ¶ 85). Although plaintiffs testified vaguely regarding disclosures of federal tax information that allegedly occurred, (Dkt. No. 128, Attach. 1 at 12, 13-14), they have no personal knowledge of any such disclosures. Instead, plaintiffs simply speculate about disclosures of federal tax information occurring via spreadsheets and unspecified emails. (Dkt. No. 128, Attachs. 3 at 10-24; 4 at 19-30; 5 at 21-33; 6 at 26-36; 7 at 9-23.) However, after reviewing "hundreds of emails, if not more," (id., Attach. 5 at 20), plaintiffs fail to identify any email that contained federal tax information or any federal tax information in any shared spreadsheets.
Given plaintiffs' failure to offer evidence in response, see supra note 4, defendants' argument that no federal tax information was disclosed is considered unopposed.
Quinn v. United States, 946 F.Supp.2d 267, 276-77 (N.D.N.Y. 2013) (internal quotation marks and citations omitted). Here, defendants easily satisfy the lightened burden triggered by plaintiffs' failure to properly oppose their argument, as well as the standard summary judgment burden. See, e.g., Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986) ("The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient[.]"); Simsbury-Avon Pres. Club, Inc. v. Metacon Gun Club, Inc., 575 F.3d 199, 204 (2d Cir. 2009) ("When the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the nonmovant's claim."); Jeffreys v. City of N.Y., 426 F.3d 549, 554 (2d Cir. 2005) ("To defeat summary judgment . . . nonmoving parties must do more than simply show that there is some metaphysical doubt as to the material facts[.]") (internal quotation marks and citation omitted).
In sum, plaintiffs' failure to point to evidence in the record that could lead to the reasonable inference that defendants disclosed their federal tax information is fatal to their remaining clams.
Even assuming that defendants disclosed plaintiffs' federal tax information to the Labor Relations Bureau or Human Resources Department, defendants argue that such internal disclosures were for a proper tax administrative purpose, as permitted by 26 U.S.C. § 6103(d). (Dkt. No. 128, Attach. 1 at 17-23.) Section 6103(d)(1) generally provides that:
Section 6103(d)(1) also requires that any disclosure by an Internal Revenue Service (IRS) official to a state taxing authority be made pursuant to a request in writing from the state taxing authority. Courts have held that an agreement between a state taxing authority and the IRS will satisfy this written request requirement if such agreement: (i) requests tax information; (ii) is signed by the head of the state agency; and (iii) designates those authorized to receive the information. See Smith v. United States, 964 F.2d 630, 633 (7th Cir. 1992).
In their erratic response, plaintiffs contend that "[t]he body of case law cited by the defendants[] states that
However, the record demonstrates that any internal disclosure associated with defendants' audit of Department employees was necessary, (Defs.' SMF ¶¶ 53, 61-62, 69-73), and done "in connection with [the Department's] legitimate need to protect the integrity of its tax enforcement operations by ensuring that its employees were in compliance with the tax laws." Gardner v. United States, 213 F.3d 735, 740 (D.C. Cir. 2000); see Hobbs v. United States ex rel. Russell, 209 F.3d 408, 410-11 (5th Cir. 2000); Rueckert v. I.R.S., 775 F.2d 208, 211-12 (7th Cir. 1985); United States v. Mangan, 575 F.2d 32, 40 (2d Cir. 1978). Additionally, defendants have provided a memorandum of understanding between the IRS and the Department that requests tax information, is signed by the head of the Department, and designates those authorized to receive the information. (Dkt. No. 128, Attach. 42.) Accordingly, there are multiple reasons to grant defendants' motion for summary judgment.
