The opinion of the court was delivered by: Hon. Bernard G. Skomal U.S. Magistrate Judge United States District Court
ORDER ON JOINT MOTION FOR DETERMINATION OF DISCOVERY DISPUTE
And all related counterclaims.
Deployment Medicine International ("DMI") filed this lawsuit alleging that Christopher Pipes ("Pipes"), a former employee, wrote himself unauthorized "checks totaling $200,000.00 drawn on DMI's checking account." Compl. at 4. DMI confronted Pipes about the unauthorized use of funds and Pipes allegedly agreed to "repay the money over time." Id. at 5. DMI agreed to treat the $200,000.00 as a loan, however, Pipes has refused to repay any part of the money. Id. DMI also has a cause of action against Pipes for slander. After DMI terminated Pipes in April, 2008, Pipes allegedly solicited business by telling customers that "DMI was having tax problems with the IRS and that DMI was, in fact, going out of business." Id. at 16.
On October 29, 2010, Pipes, DMI, and John Hagmann*fn1 ("Hagmann") filed a Joint Motion for Determination of Discovery Dispute. (Doc. No. 95.) After extensive meet and confer efforts, DMI withdrew its objections to all but one Request for Production-Request for Production No. 66. (Id.) Specifically, DMI agreed to supplement its responses to interrogatory Nos. 5 and 6, and also agreed to produce documents responsive to Request For Production Nos. 65, 69, and 70. (Id.) Hagmann also withdrew his objections and agreed to produce documents responsive to Request For Production Nos. 5 and 14. The only remaining dispute pertains to Request For Production No. 66.
A. Pipes' Request for Production No. 66
Request For Production No. 66 asks DMI to produce its "federal and state income tax returns for tax year 2006." Joint Mot. at 4. Pipes argues that he is entitled to DMI's entire 2006 tax return in order to "probe the truth of DMI's allegation that $200,000.00 in unauthorized checks were paid to Mr. Pipes and that this amount was then considered a loan payable to DMI." Id. Ultimately, Pipes wants to determine how DMI characterized the $200,000.00 in its disclosure to the IRS. Pipes also argues that he is entitled to the tax return in order to rebut DMI's claim for slander per se. Pipes allegedly made statements to third-parties that "DMI was 'going out of business' and having trouble with the IRS." Id.
DMI's written objection stated the following:
This responding party objects to this request on the grounds that it seeks records and documents which are beyond the permissible scope of discovery, not relevant to any party's claims or defenses or likely to lead to the discovery of admissible evidence, violates the financial rights of privacy and trade secrets of Deployment Medical Consultants, Inc. and is oppressive and burdensome.
After meeting and conferring, DMI has offered to produce a "redacted version of its 2006 income tax return," to provide the portion "which may reflect the treatment of a $200,000 loan...." Id. at 5. DMI also states that it has already described the circumstances of the loan in response to two interrogatories. .
B. Legal Standards and Analysis
Neither party addresses whether the Court should apply federal privilege law or California law to this discovery dispute. Federal Rule of Evidence 501 governs privilege in cases in federal court. The Rule states, in relevant part, that where "State law supplies the rule of decision, the privilege...shall be determined in accordance with State law." Fed. R. Evid. 501. This case is in federal court on diversity grounds. There are no federal questions or claims, therefore California law ...