Gottwald v. Producers Group I, LLC et al

Filing 35

ORDER granting 28 Motion to Compel. Defendant Producers Group I, LLC's tax returns due by May 1, 2013; Defendant Penny Reilly's tax returns due by May 10, 2013. Signed by Magistrate Judge William Matthewman on 4/25/2013. (nbt)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 12-81297-CIV-MARRA/MATTHEWMAN

BRUCE C. GOTTWALD, JR.,
Plaintiff,
v.
PRODUCERS GROUP I, LLC, and
PENNY REILLY,
Defendants.
______________________________________/
ORDER GRANTING PLAINTIFF’S MOTION TO COMPEL
THIS CAUSE is before the Court pursuant to an Order of Reference from United States
District Judge Kenneth A. Marra. See DE 25. Before the Court is Plaintiff Bruce C. Gottwald,
Jr. (“Gottwald”)’s Motion to Compel Federal Tax Returns [DE 28]. Defendants Producers
Group I, LLC (“Producers Group”) and Penny Reilly (“Reilly”) have filed a response [DE 34].
A hearing was held on April 19, 2013, and the matter is now ripe for disposition. For the
following reasons, the Court will grant the motion.
I.

Background

This action arises out of a real estate transaction gone awry. According to the Complaint,
Plaintiff Gottwald, a resident of Virginia, engaged Producers Group to assist him in the purchase
of a million-dollar property in Wellington, Florida. Reilly, who worked for Producers Group,
acted as Plaintiff’s real estate agent with respect to the transaction. During the course of her

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dealings with Plaintiff, Reilly often used a personal web-based e-mail account instead of her
corporate email account. At some juncture during the interactions between Reilly and Gottwald,
a mysterious and nefarious third party (the “hacker”) obtained Reilly’s e-mail account
information and began to intercept e-mails between Reilly and Gottwald. On November 12,
2012, the hacker intercepted an e-mail from Reilly to Gottwald containing wiring instructions for
the $210,000 down payment Gottwald was to make on the Wellington property. The hacker then
modified these wiring instructions before sending the e-mail on to Gottwald. As a result,
Gottwald wired $210,000 to the wrong account and was unable to recover those funds. Gottwald
then filed the instant action, bringing causes of action for negligence, professional malpractice,
negligent misrepresentation, violation of the Florida Deceptive and Unfair Trade Practices Act,
and violation of the Lanham Act. The Complaint demands both compensatory and punitive
damages.
On February 12, 2013, Plaintiff propounded his First Set of Requests for Admissions,
Interrogatories, and Requests for Production to Producers Group and Reilly. Among the requests
is one for “[c]opies of your filed federal income tax returns for the years 2010, 2011, and 2012.”
Defendants objected to this request on the grounds that it violated their “privacy rights and/or
financial privilege, is premature, overly broad, irrelevant and not reasonably calculated to lead to
discoverable evidence.” Plaintiff subsequently filed the instant motion to compel [DE 28],
asking the Court to order Defendants to turn over their tax returns.
II.

Legal Standard

In the federal courts, civil litigants
may obtain discovery regarding any nonprivileged matter that is relevant to any
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party’s claim or defense—including the existence, description, nature, custody,
condition, and location of any documents or other tangible things and the identity
and location of persons who know of any discoverable matter.
Fed. R. Civ. P. 26(b)(1). Something is relevant if it has any tendency to make a
consequential fact more or less probable. Fed. R. Evid. 401. A document or other object is
properly discoverable if it is reasonably calculated to lead to the discovery of admissible
evidence. Milinazzo v. State Farm Ins. Co., 247 F.R.D. 691, 695 (S.D. Fla. 2007).
III.

Discussion

Plaintiff Gottwald claims that he is entitled to discovery of Defendants’ tax returns
because financial worth is relevant to his claim for punitive damages. Defendants, on the other
hand, argue that under Florida law, Gottwald must first make a showing of a reasonable
evidentiary basis for recovery of punitive damages before conducting financial worth discovery.
They contend that Plaintiff has failed to make such a showing, and that his request is therefore
premature.
It is axiomatic that a federal court sitting in diversity must apply state substantive law and
federal procedural law. Walker v. Armco Steel Corp., 446 U.S. 740, 745 (1980). See also Erie
R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). The parties agree that Florida law prohibits
financial discovery until after a plaintiff has made a reasonable showing that he is entitled to
punitive damages. The seminal issue in resolving the instant dispute, therefore, is whether this
Court is bound to apply that provision of state law in this case.
In a run of the mill civil case in Florida state court, a plaintiff’s request for punitive
damages is strictly constrained. Namely, in the Florida courts,
. . . no claim for punitive damages shall be permitted unless there is a reasonable
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showing by evidence in the record or proffered by the claimant which would provide a
reasonable basis for recovery of such damages. The claimant may move to amend her or
his complaint to assert a claim for punitive damages as allowed by the rules of civil
procedure. The rules of civil procedure shall be liberally construed so as to allow the
claimant discovery of evidence which appears reasonably calculated to lead to admissible
evidence on the issue of punitive damages. No discovery of financial worth shall proceed
until after the pleading concerning punitive damages is permitted.
Fla. Stat. § 768.72(1) (2012) (“Section 768.72”) (emphasis added). In Cohen v. Office Depot,
Inc., 184 F.3d 1292 (11th Cir. 1999), vacated in part on other grounds, 204 F.3d 1069 (11th Cir.
2000), the United States Court of Appeals for the Eleventh Circuit held that Section 768.72’s
requirement that a plaintiff seek leave of court before pleading punitive damages is inapplicable
in federal court. 184 F.3d at 1299. As the defendants point out, in so doing, the Court of
Appeals did not decide whether Section 768.72’s discovery limitations applied in federal court.
See Porter v. Ogden, Newell, & Welch, 241 F.3d 1334, 1340 (11th Cir. 2001). However, in
Cohen, the court provided an explicit roadmap to lower courts on how to deal with similar
conflicts between state law and federal procedural rules:
Under Hanna [v. Plumer, 380 U.S. 460 (1965)], the proper question to ask is not whether
the state law provision is procedural or substantive; instead, the court must ask whether
the state law provision conflicts with a federal procedural rule. If it does, the federal
procedural rule applies and the state provision does not. Stated another way, if the state
law conflicts with a federal procedural rule, then the state law is procedural for Erie /
Hanna purposes regardless of how it may be characterized for other purposes.
The only exception is where the advisory committee, the Supreme Court, and Congress
have collectively erred and adopted a federal procedural rule that is either
unconstitutional or should not have been adopted under the Rules Enabling Act process
because it is a matter of substantive law.
Cohen, 184 F.3d at 1296–97. See also Blount v. Sterling Healthcare Grp., 934 F.Supp. 1365,
1373– 74 (S.D. Fla. 1996). Here, the federal procedural rule that governs discovery is Federal
Rule of Civil Procedure 26, which has been interpreted to “encompass any matter that bears on,
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or that reasonably could lead to other matter that could bear on, any issue that is or may be in the
case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978) (citing Hickman v. Taylor,
329 U.S. 495, 501 (1947)). The Court of Appeals has upheld the discovery of tax information
where it is “arguably relevant” to the claims at issue. Erenstein v. SEC, 316 F.App’x 865, 869–
70 (11th Cir. 2008) (unpublished) (citing Maddow v. Proctor & Gamble Co., Inc., 107 F.3d 846,
853 (11th Cir. 1997)). Moreover, it is clear that financial worth is relevant to a claim of punitive
damages. See EEOC v. DiMare Ruskin, Inc., No. 2:11-cv-158-FtM-36SPC, at *3–*4 (M.D. Fla.
Aug. 24, 2011); Soliday v. 7-Eleven, Inc., No. 2:09-cv-807-FtM-29SPC, 2010 WL 4537903, at
*2 (M.D. Fla. Nov. 3, 2010) (noting that while “[i]n most cases, financial discovery is not
appropriate until after judgment,” financial discovery is relevant where punitive damages are
sought).
Under the Cohen analysis, it is clear that Section 768.72’s restriction on financial worth
discovery conflicts with Rule 26’s mandate of a broad and liberal discovery regime. The
discovery provision must therefore be interpreted as procedural, rather than substantive, for Erie
purposes. Moreover, there is no indication that Rule 26 is unconstitutional or violates the Rules
Enabling Act. Accordingly, in federal actions, even those based upon state substantive law,
Section 768.72’s discovery provision must yield.1
Because Gottwald has pressed a claim for punitive damages, evidence of the defendants’
financial worth is relevant to his claim. He is therefore entitled to discovery of their tax returns.
Moreover, in light of the expedited discovery schedule and the upcoming deposition of

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In so holding, the Court notes its full agreement with Judge Zloch’s poignant and extended analysis of this very
issue in Ward v. Estaleiro Itaji S/A, 541 F.Supp.2d 1344 (S.D. Fla. 2008).

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Producers Group’s corporate representative, discovery of the tax returns is not premature.2 The
Court, however, is mindful of the sensitive and private nature of such information, and will
therefore enter a protective order to protect it from unnecessary and unwarranted dissemination.
IV.

Conclusion

For the foregoing reasons, it is hereby
ORDERED that Plaintiff’s Motion to Compel [DE 28] is GRANTED;
FURTHER ORDERED that on or before May 1, 2013, Defendant Producers Group I,
LLC shall produce to Plaintiff copies of its 2010, 2011, and 2012 filed federal income tax
returns; and it is
FURTHER ORDERED that on or before May 10, 2013, Defendant Penny Reilly shall
produce to Plaintiff copies of her 2010, 2011, and 2012 filed federal income tax returns; and it is
FINALLY ORDERED that pursuant to Federal Rule of Civil Procedure 26(c), the
aforementioned tax returns, including copies thereof, shall be deemed confidential, and are for
use only in the above-entitled action. Any disclosure of the tax returns shall be limited to those
persons to whom disclosure is reasonably necessary for the prosecution of this action. If the

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Defendants alternatively argue that they have filed a motion to dismiss or strike the punitive damages counts of
Plaintiff’s complaint, and that the Court should therefore defer any decision as to this discovery matter until after
adjudication of the motion to dismiss. This argument is not well-taken. First, discovery has not been stayed in this
case, and in the absence of such a stay, this Court must make its decision based on the Plaintiff’s allegations as they
now stand. Second, a review of the record indicates that there would be little basis for such a stay. Motions to stay
discovery “are not favored because when discovery is delayed or prolonged it can create case management problems
which impede the Court’s responsibility to expedite discovery and cause unnecessary litigation expenses and
problems.” Feldman v. Flood, 142 F.R.D. 651, 652 (M.D. Fla. 1997). Moreover, there is no general rule that
discovery be stayed while a pending motion to dismiss is resolved. See Ray v. Spirit Airlines, Inc., No. 12-61528CIV, 2012 WL 5471793, at *3 (S.D. Fla. Nov. 9, 2012) (citing Chudasama v. Mazda Motor Corp., 123 F.3d 1353,
1357 (11th Cir. 1997). See also S.D. Fla. L. R. app. A, § I(D)(5) (“Normally, the pendency of a motion to dismiss . .
. will not justify a unilateral motion to stay discovery pending a ruling on the dispositive motion. Such motions for
stay are generally denied except where a specific showing of prejudice or burdensomeness is made”).

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parties wish to have the Court enter a more extensive protective order to govern discovery in this
case, they may make an appropriate motion.
DONE AND ORDERED in Chambers at West Palm Beach, Palm Beach County,
Florida, this 25th day of April, 2013.

WILLIAM MATTHEWMAN
United States Magistrate Judge

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