Rigel Corp. v. State/ADOR

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IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE DIVISION ONE FILED: 07-22-2010 PHILIP G. URRY,CLERK BY: GH RIGEL CORPORATION, a Nebraska corporation that is qualified to do business in Arizona as Aksarben Pizza Corporation dba Krispy Kreme, ) No. 1 CA-TX 08-0006 ) ) DEPARTMENT T ) ) O P I N I O N ) Plaintiff-Appellant, ) ) v. ) ) STATE OF ARIZONA; ARIZONA ) DEPARTMENT OF REVENUE, ) ) Defendants-Appellees.) ) Appeal from the Arizona Tax Court Cause No. TX 2006-050010 The Honorable Thomas Dunevant, III, Judge (Retired) AFFIRMED Cavanagh Law Firm By Jeffrey B. Smith Peter C. Guild Attorneys for Plaintiff-Appellant Phoenix Terry Goddard, Attorney General By Kimberly J. Cygan, Assistant Attorney General Lisa A. Neuville Attorneys for Defendants-Appellees Phoenix G E M M I L L, Judge ¶1 Rigel Corporation, doing business as Krispy Kreme ( Rigel ), appeals an Arizona Tax Court ruling holding Rigel liable for transaction privilege taxes under the retail classification. See Ariz. Rev. Stat. § 42-5061(A) (Supp. 2009).1 The issue presented is whether Rigel is a qualified retailer, exempt from the transaction privilege tax, under one or more of the enumerated exceptions in Arizona Revised Statutes ( A.R.S. ) section 42-5102(A) (2006). The tax court concluded that Rigel did not come within any of these exceptions to taxation, and we agree. ¶2 Additionally, ( Department ) the challenges Arizona the tax Department court s of rejection Revenue of a deliberative process privilege regarding certain documents and evidence. We agree with the tax court that this privilege does not exist under Arizona law. ¶3 We therefore affirm the judgment of the Arizona Tax Court in its entirety. FACTS AND PROCEDURAL BACKGROUND ¶4 Between June 1, 1999 and April 30, 2004, Rigel sold doughnuts to the general public in Arizona.2 At least 75 percent of its doughnut sales to the public were in quantities of a dozen or more and were boxed to go. This percentage did not include Rigel s wholesale doughnut sales to retail vendors. 1 This statute, as amended in 2008, applies retroactively to taxable periods beginning from and after December 31, 1999. 2008 Ariz. Sess. Laws, ch. 194, § 5. The statute was amended again in 2010. The 2010 amendments, however, do not impact any issues in this appeal. 2 Rigel also sold beverages and promotional items. 2 ¶5 Rigel did not ask its customers where they intended to eat the doughnuts, and the doughnuts were placed in boxes or bags when sold. Rigel provided tables and chairs at each of its Arizona franchise locations for the estimated 5 percent of those customers who chose to consume the doughnuts on the premises. ¶6 Rigel recording all also sales maintained of a cash dozen or registers more with keys doughnuts. for Rigel s clerks were required to use these keys to implement the policy of providing a $1 discount for all sales of a dozen or more doughnuts. With the exception of its wholesale transactions, Rigel added a transaction privilege tax component to the price it charged its customers for doughnuts, whether they bought one doughnut, a dozen, or more. ¶7 Rigel made approximately 50 percent retail sales at its drive-through windows. of its total It recorded these sales on cash registers dedicated to such window sales, and did not use these registers for its walk-up retail business. ¶8 The Department assessed Arizona transaction privilege taxes on Rigel s Rigel responded take-out by and filing on-premises series a transaction privilege taxes. consumption refund of sales. claims for The last amended refund claim, filed on June 2, 2004, requested $2,332,393.15 for the June 1999 to April 2004 period. Rigel filed an When the Department denied the claims, unsuccessful protest 3 with the Office of Administrative Hearings in accordance with A.R.S. §§ 42-1119 to -1251 (2006 & Supp. 2008).3 ¶9 Rigel then appealed A.R.S. § 42-1254(C) (2006). to the tax court pursuant to The parties litigated whether the deliberative process privilege shielded some of the Department s documents from production. These documents included memos to the Department s Uniformity Committee regarding policy on the food tax exemption and notes from a 1999 Uniformity Committee meeting. this The tax court granted Rigel s motion to compel, and court declined to exercise jurisdiction over the Department s ensuing petition for special action challenging the tax court s ruling. ¶10 Meanwhile, the parties cross-moved for partial summary judgment on the application of the exemption statute. The tax court ruled in the Department s favor, denied the refund claims, and entered judgment for additional tax and accrued interest of $121,743.45.4 This appeal followed. 3 During the administrative process, Rigel claimed that it was an eligible grocery business under A.R.S. § 42-5102(A)(1)(2006) and later contended in the tax court that the Department had violated the equal protection clause. Rigel has not raised these arguments on appeal, and we therefore consider them waived and do not address them. See Nelson v. Rice, 198 Ariz. 563, 567 n.3, ¶ 11, 12 P.3d 238, 242 n.3 (App. 2000). 4 Rigel stipulated to judgment regarding additional transaction privilege tax exemptions it had claimed on some wholesale transactions and on machinery and equipment used in a manufacturing operation. 4 RIGEL IS NOT A QUALIFIED RETAILER EXEMPT FROM THE ARIZONA TRANSACTION PRIVILEGE TAX ¶11 This court reviews the tax court s grant of summary judgment de novo. Wilderness World, Inc. v. Ariz. Dep t of Revenue, 182 Ariz. 196, 198, 895 P.2d 108, 110 (1995). We likewise review de novo the tax court s construction of statutes and findings that combine fact and law, but review its factual findings for clear error. Ariz. Dep t of Revenue v. Ormond Builders, Inc., 216 Ariz. 379, 383, ¶ 15, 166 P.3d 934, 938 (App. 2007). ¶12 Arizona levies privilege taxes measured by the amount or volume of business transacted by persons on account of their business activities. transaction privilege differences: gross (1) receipts the A.R.S. tax is akin transaction instead of § 42-5008(A) to a sales privilege individual tax sales, (2006). The tax with two is levied on and (2) the transaction privilege tax is levied on the seller, whereas a sales tax may be levied directly upon the buyer. See Tower Plaza Invs. Ltd. v. DeWitt, 109 Ariz. 248, 250, 508 P.2d 324, 326 (1973) (the transaction privilege tax is imposed on gross revenues instead of on individual transactions); Ariz. Dep t of Revenue v. Action Marine, Inc., 218 Ariz. 141, 142, ¶ 7, 181 P.3d 188, 189 (2008) ( The liability for TPT falls on the taxpayer, not on the taxpayer's customers. ) (citing A.R.S. § 5 42-5024 (2006)). ¶13 In this case, the Department assessed the transaction privilege tax pursuant to the retail classification, A.R.S. § 42-5061(A) (2006), which provides in relevant part: The retail classification is comprised of the business of selling tangible personal property at retail. The tax base for the retail classification is the gross proceeds of sales or gross income derived from the business. The tax imposed on the retail classification does not apply to the gross proceeds of sales or gross income from: * * * (15) Food, as provided in and subject to the conditions of article 3 of this chapter and § 42-5074. This exception for sales of food in A.R.S. § 42-5061(A)(15) is significantly limited by the conditions of article 3 of this chapter and the definition of food. ¶14 Article 3 includes A.R.S. § 42-5102, which several exemptions from transaction privilege taxes: A. Except for the gross proceeds of sales or gross income from the sale of food for consumption on the premises, the taxes imposed by this chapter do not apply to the gross proceeds of sales or gross income from sales of food by any of the following: * * * 2. A retailer who conducts a business whose primary business is not the sale of food but who sells food which is displayed, packaged and sold in a similar manner as an eligible grocery business. 6 provides 3. A retailer who sells food and does not provide or make available any facilities for the consumption of food on the premises. 4. A retailer who conducts a delicatessen business either from a counter which is separate from the place and cash register where taxable sales are made or from a counter which has two cash registers which are used to record taxable and tax exempt sales or a retailer who conducts a delicatessen business and who uses a cash register which has at least two tax computing keys which are used to record taxable and tax exempt sales. A.R.S. § 42-5102(A). Food sales by anyone other than a qualified retailer -- i.e., the classifications described in § 42-5102(A) -- do not qualify for an exemption. Code ¶15 Ariz. Admin. ( A.A.C. ) R15-5-1860(12)(a). Arizona law presumes that all gross proceeds of sales comprise the tax base for the business until the contrary is established. A.R.S. § 42-5023 (2006). Rigel claims that its sales are exempt because it is a qualified retailer under A.R.S. § 42-5102(A)(2), (3), and (4). We will examine Rigel s arguments for exemption from taxation under each of these three subsections of § 42-5102(A).5 Rigel Does Not Qualify Under A.R.S. § 42-5102(A)(2) ¶16 Rigel contends that it qualifies under A.R.S. § 42- 5 Rigel does not claim to be a qualified retailer, exempt from transaction privilege taxes, under subsections (1), (5), or (6) of § 42-5102(A). 7 5102(A)(2) as a retailer who conducts a business whose primary business is not the sale of food but who sells food which is displayed, packaged and sold in a similar manner as an eligible grocery business. (Emphasis added.) Food is defined as any food item intended for human consumption which is intended for home consumption as defined by rules adopted by the department pursuant to § 42-5106. A.R.S. § 42-5101(3)(2006) (emphasis added). ¶17 Arizona Administrative Code R15-5-1860(12)(b)(ii) provides further guidance regarding the exemption granted in § 42-5102(A)(2) by defining a qualified retailer as: Retailers whose primary business is not the sale of food, but who sell food in a manner similar to grocery stores. This category includes stores such as department stores, drug stores, and gas stations. As the Department has pointed out, examples of such qualified retailers could include Walgreens, Circle K, Target, Walmart, and Costco. Each is an entity whose primary business is not the sale of food intended for home consumption but which sells food which is displayed, packaged and sold in a similar manner as an eligible grocery business. ¶18 According to See A.R.S. § 42-5102(A)(2). Rigel, only about 5 percent of its customers consumed the doughnuts and beverages on the premises. Food sold for consumption on the premises therefore constituted a small percentage of Rigel s overall retail sales, and Rigel 8 does not dispute that the doughnuts sold for consumption off the premises were food intended for home consumption. We conclude on this record that Rigel does not satisfy the requirement of § 42-5102(A)(2) exemption as a retailer whose primary business is not the sale of food. ¶19 Rigel restaurant meaning contends that and food that was it intended for its not home primary business primarily selling consumption.6 was as a food -- are not We persuaded by this challenge to the interpretation of the word primary in § 42-5102(A)(2). The tax court understood primary in this context to mean more than 50 percent. The statutes the do not define primary as used here. When legislature has not defined a word or phrase in a statute, we may consider the definitions of respected dictionaries. DeVries v. State, 221 Ariz. 201, 207, ¶ 21, 211 P.3d 1185, 1191 (App. 2009); Urias v. PCS Health Sys., Inc., 211 Ariz. 81, 85, ¶ 22, 118 P.3d 29, 33 (App. 2005). See also A.R.S. § 1-213 (2002) ( Words and phrases shall be construed according to the common and approved use of the language. ). Primary means [f]irst or best in degree, quality, or importance. Webster's II New Riverside University Dictionary 934 (1994). See also The New Oxford American Dictionary 1345 6 (2d ed. 2005) (defining Both parties acknowledged at oral argument that some of these definitions and concepts are counter-intuitive, at least at first blush. 9 primary as of chief importance; principal ). We need not, however, determine a precise definition of primary in § 425102(A)(2) Rigel s because primary consumption. it is business unmistakable is the sale on of this record doughnuts for that home Therefore, we agree with the tax court that Rigel does not qualify for the transaction privilege tax exemption provided by § 42-5102(A)(2). ¶20 Rigel further maintains that it is antithetical to the statute s intent to tax food differently based upon a retailer s business. But § 42-5102 makes clear that the exemption only may be claimed by qualified retailers. a corresponding regulation that This point is driven home by specifies that [a] retailer other than a qualified retailer must pay a tax measured by the sale of otherwise exempt food even though the sale of such items would be exempt if sold by a qualified retailer. A.A.C. R15-5- 1860(12)(a). ¶21 Tax distinctions based upon the nature of a retailer s business are not unique to this statute. points out, the federal government retailers with respect to food stamps. As the Department distinguishes between A customer may use food stamps to purchase doughnuts at a grocery store, but may not use them for purchases at a specialty doughnut shop. See 7 C.F.R. § 278.1(b)(1)(iv). ¶22 Rigel counters that a former Department legislative 10 liaison once wrote that the legislature intended to create a level playing field for all grocery stores and restaurants. But the the liaison summary of testified her at alleged deposition statement at in this an Committee meeting in 2003 was incorrect. case internal that Uniformity She clarified that while taxpayers may have believed that food sold in bulk for home consumption should not be taxable, that was not what the statute said or what the Department s position was. ¶23 Rigel also asserts that the Department at one time interpreted the exemption in A.R.S. § 42-5102(A)(2) to include bulk sales by doughnut shops. In 1999, the Department s Food Subcommittee asked the Department to consider interpreting the statutes to include a restaurant as a qualified retailer if the restaurant s primary business was not the sale of food intended for home consumption, but one part of its business was to sell food in bulk the way grocery stores do. Thus, Marie Callender s could be a qualified retailer because its primary business was the sale of food for consumption on the premises, but it also had a separate counter from which it sold baked goods in bulk for home consumption. The then-director of the Department eventually directed Department section heads to provisionally apply A.R.S. substantially § 42-5102(A)(2) adopted the as set forth subcommittee s in a memo recommendations. that To date, however, the Department has not created a rule or issued a 11 ruling adopting the recommendation that it interpret A.R.S. § 42-5102(A)(2) to include restaurants as qualified retailers; rather, the applicable rule continues to be that restaurants are generally not qualified retailers. Moreover, the recommendations A.A.C. underscore R15-5-1862(A). that the primary business of the taxpayers under discussion was not the sale of food for home consumption. In addition, the Department has long held that Dunkin Donuts, a retailer similar to Rigel, is not a qualified retailer. ¶24 Nor are See Arizona Sales Tax Ruling No. 5-17-80. we persuaded by Rigel s reliance upon a Department information letter concluding that Rigel falls within the scope of A.R.S. § 42-5102(A)(2). The letter, from the then- manager of the Tax Research and Analysis Section, does not state that Rigel or other doughnut businesses are qualified retailers. It merely provides that the exemption for sales of food may extend to retailers whose primary business is not the sale of food for home consumption. the Department could later Further, the letter cautions that determine that its advice was erroneous and the only consequence would be that the Department could abate penalties and interest to the taxpayer receiving the letter. ¶25 We cannot attach the same significance to the letter that Rigel does. The letter responded to correspondence from a public accounting company, which stated that all the items we 12 are inquiring about are purchased from a qualified retailer listed in A.R.S. § 42-5102 and inquired whether items such as prepared salads qualified for exemption. Because the author of the letter was provided minimal information about the taxpayer s operations, and no information about what was provided with the food and how the food was displayed, the letter hardly qualifies as a binding determination regarding whether Rigel is a qualified retailer. ¶26 Finally, there is no evidence that Rigel relied on the letter. With the exception of its separately identified wholesale transactions, Rigel added a charge for the transaction privilege tax to the purchase price it charged customers. Rigel Does Not Qualify Under A.R.S. § 42-5102(A)(3) ¶27 doughnuts Alternatively, from Rigel drive-through contends windows that qualifies its sale of for exemption from taxation under A.R.S. § 42-5102(A)(3), which provides: A. Except for the gross proceeds of sales or gross income from the sale of food for consumption on the premises, the taxes imposed by this chapter do not apply to the gross proceeds of sales or gross income from sales of food by any of the following: * * * 3. A retailer who sells food and does not provide or make available any facilities for the consumption of food on the premises. (Emphasis added.) Facilities 13 for the consumption of food include tables, chairs, benches, booths, stools, counters, and similar conveniences. ¶28 A.R.S. § 42-5101(2). Rigel admits that it provides tables and chairs for customers through use window on the premises, represents a separately defined hours. but argues separate that business its drive- activity with Section 42-5101(6), A.R.S., defines premises as: the total space and facilities in or on which a retailer conducts his business and which are owned or controlled, in whole or in part, by a retailer or which are made available for the use of customers of the retailer or group of retailers, including any building or part of a building, parking lot or grounds. ¶29 Under this definition, Rigel s drive-through window is part of the same space in which tables and chairs are provided. Therefore, notwithstanding that Rigel may have separately recorded drive-through sales and in-store sales, Rigel fails to qualify includes under tables A.R.S. § 42-5102(A)(3) and chairs for use by because its customers to premises consume doughnuts and beverages.7 Rigel Does Not Qualify Under A.R.S. § 42-5102(A)(4) ¶30 Finally, Rigel argues that it is a qualified retailer under A.R.S. § 42-5102(A)(4), which applies to a retailer who 7 We also reject Rigel s argument that the meaning of premises for this purpose should be derived primarily by reference to A.R.S. § 42-5101(4), which provides examples of food for consumption on the premises. 14 conducts a delicatessen business (1) from a counter separate from the place and cash register where taxable sales are made, or (2) from a counter which has two cash registers which are used to record taxable and tax exempt sales, or (3) using a cash register with at least two tax computing keys which are used to record taxable and tax exempt sales. ¶31 The statute does not define delicatessen, but the Department s rules state that it is a business which sells specialty food items, such as prepared cold meats, perishable food and grocery items kept under refrigeration. 1860(5). A.A.C. R15-5- Another rule directs a delicatessen to report its sales of taxable food, including hot and cold sandwiches, under the restaurant classification. A.A.C. R15-5-1862(C). ¶32 its Rigel argues that stores were delicatessens because they sold perishable food, but we are not persuaded. Rigel points us to a Department information letter dated March 29, 1999, indicating that a doughnut shop is similar to a delicatessen and could qualify under A.R.S. § 42-5102(A)(4) if it uses a dual cash register method. The main problem with this argument is that the Department s Uniformity Committee opted in November 1999 to doughnut and ice determined: The not extend cream the shops. definition of delicatessen Specifically, delicatessen definition the to Committee should not be broadened to include donut [sic] shops, ice cream shops, etc. 15 Similarly, the aforementioned 1980 tax ruling doughnut shops are not delicatessens. concluded that See Arizona Sales Tax Ruling # 5-17-80. ¶33 Nor can we accept Rigel s contention that specialty food stores, Arizona 1980. apart adopted from the delicatessens, qualified retailer did not exemption exist when statutes in As the Department points out, Winchell s Donuts opened in 1948 and Dunkin Donuts opened in 1955. wished to exempt specialty doughnut Had the legislature stores as qualified retailers it could have done so in 1980 or anytime since. ¶34 Moreover, Rigel fails to satisfy the two cash register and dual key requirements of A.R.S. § 42-5102(A)(4). Rigel admittedly did not have dual keys for taxable and non-taxable items, and it charged taxes on all sales. not key in any doughnut sales as It consequently did non-taxable, and did not distinguish between doughnuts consumed on the premises and those ordered for take-out. Rigel claims sales of a dozen or more doughnuts were rung up separately, but that is not sufficient under A.R.S. § 42-5102(A)(4). ¶35 In sum, we agree with the tax court that Rigel does not fall within the definition of a qualified retailer under A.R.S. §§ 42-5102(A)(2), (3), or (4). from doughnut exemption. and associated sales Therefore, its receipts do See A.A.C. R15-5-1860(12)(a). 16 not qualify for tax THE DELIBERATIVE PROCESS PRIVILEGE ¶36 The Department challenges the tax court s rejection of its assertion that the deliberative process privilege protected certain discussions regarding tax and policy deliberations and tax code within the Department interpretations. Before reaching the merits of this issue, however, we must consider Rigel s challenge argument on to the appeal. Department s According to ability Rigel, to this raise court this lacks jurisdiction to consider this argument because the Department did not cross-appeal. ¶37 The Department did not need to file a cross-appeal to challenge the tax court s privilege ruling. ( The brief of the appellee may, See ARCAP 13(b)(3) without need for a cross- appeal, include in the statement of issues presented for review and in the argument any issue properly presented in the superior court. ). practical foreclosed Essentially no issues which could lead to the same result by as lack that of a embodied in cross-appeal. the judgment ARCAP 13 will State be Bar Committee Note.; see also Ariz. Health Care Cost Containment Sys. Admin. v. Carondelet Health Sys., 188 Ariz. 266, 269, 935 P.2d 844, 847 (App. 1996). Our decision with respect to the claimed privilege could not operate to enlarge the Department s relief under this judgment. Accordingly, we have jurisdiction to address the deliberative process privilege argument on the 17 merits. ¶38 We recognize that because the Department is the successful party on appeal, the tax court s ruling concerning the deliberative process privilege ultimate result in this case. is not essential to Nonetheless, we choose in our discretion to address the question for several reasons. the Department contends the that recognition of a First, deliberative process privilege is important and necessary to its efficient operation. in the Second, the Department properly preserved this issue tax court s court, ruling, sought and now special presses action review of for ruling on a the tax appeal. Questions of privilege frequently are decided by special action before the wrongful conclusion denial of a of the underlying privilege s case protection because the constitutes an independent harm that cannot be cured by a favorable result on the merits. See Sun Health Corp. v. Myers, 205 Ariz. 315, 317, ¶ 2, 70 P.3d 444, 446 (App. 2003) ( Because an appeal offers no adequate remedy for the prior disclosure of privileged information, special action jurisdiction is proper to determine a question of privilege. ). This court, however, declined to accept jurisdiction when the Department petitioned for special action relief from the tax court s rejection of this privilege in this privilege case. involve Third, the by their very adjudication 18 of nature, rights questions that of exist independently of the merits of the underlying case. A party that is successful on the merits of an action may nonetheless be aggrieved if its disclosed by questions except privileged court in communications order. If we those cases have decline where been to wrongly review compelled such disclosure plainly affects the result in the underlying case, legal errors affecting statutory privilege rights may often, as a practical matter, be capable of repetition while evading review. The Tax Court Did Not Err In Rejecting The Department s Deliberative Process Privilege Argument ¶39 the During discovery in this action, Rigel requested that Department resisted produce production of various documents. certain documents deliberative process privilege. The by Department asserting the Rigel persuaded the tax court that this privilege did not preclude the Department s production of internal memoranda and correspondence. Whether a privilege exists is a question of law that we review de novo. Blazek v. Superior Court, 177 Ariz. 535, 537, 869 P.2d 509, 511 (App. 1994). ¶40 As a threshold matter, the deliberative process privilege has not heretofore been adopted in Arizona but instead is a federal privilege preserved in exemption 5 of the Freedom of Information Act ( FOIA ), 5 U.S.C. § 552(b)(5). Ariz. Indep. Redist. Comm n v. Fields, 206 Ariz. 130, 141, ¶ 33, 75 P.3d 19 1088, 1099 (App. 2003). The statute shields inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency. 5 U.S.C. § 552(b)(5). decisional materials that The privilege extends to pre- reflect a government official s deliberative process, including opinions, recommendations, and advice about agency policies. 75 P.3d at 1099. Fields, 206 Ariz. at 141, ¶ 33, A litigant may obtain the materials if the need for the materials and the need for accurate fact-finding override the government s interest in non-disclosure. Federal Trade Comm n v. Warner Commc ns Inc., 742 F.2d 1156, 1161 (9th Cir. 1984). under FOIA The litigant s ability to overcome the privilege is subject to the court s evaluation of various factors, including (1) the relevance of the evidence[,] (2) the availability of other evidence[,] (3) the government s role in the litigation[,] and (4) the extent to which disclosure would hinder frank and independent discussion regarding contemplated policies and decisions. ¶41 Arizona Id. recognizes disclosing public records. a legal presumption in favor of Cox Ariz. Publ ns, Inc. v. Collins, 175 Ariz. 11, 14, 852 P.2d 1194, 1198 (1993). Moreover, we have held that government agencies do not ordinarily have a privilege to refuse to produce evidence unless a statute has specifically created an exemption. Gordon v. Indus. Comm n, 23 Ariz. App. 20 457, 460, 533 P.2d 1194, 1197 (1975) (citing Udall, Ariz. Law of Evid. § 102 (1960)). To date, our legislature has not codified any such privilege in the Arizona Public Records statutes. A.R.S. §§ 39-121 to -161 (2001 & Supp. 2008). See We will not, via decisional law, create this privilege at this time. Because this asserted privilege was the sole basis of the Department s refusal to produce specific documents, the tax court did not err in ordering the items to be produced.8 CONCLUSION ¶42 We affirm the tax court s grant of summary judgment to the Department and its decision to compel production of the Department s documents. ______/s/_____________________ JOHN C. GEMMILL, Judge CONCURRING: ______/s/_____________________ DIANE M. JOHNSEN, Judge ___/s/_________________________ PETER B. SWANN, Presiding Judge 8 We agree with Rigel that Grimm v. Ariz. Bd. of Pardons & Paroles fails to support the Department s deliberative process privilege argument. 115 Ariz. 260, 564 P.2d 1227 (1977). The Arizona Supreme Court held in Grimm that the board could be liable only for grossly negligent or reckless release of a prisoner, and thus any inquiry into the mental processes of a parole decision is improper. Id. at 269, 564 P.2d at 1236. In other words, any such inquiry would not be reasonably calculated to lead to the discovery of admissible evidence. This holding and the court s protective order thus are based on the discovery rules, not on a privilege. Id. at 269-70, 564 P.2d at 1236-37. 21

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