Unpublished Disposition, 867 F.2d 613 (9th Cir. 1989)

Annotate this Case
US Court of Appeals for the Ninth Circuit - 867 F.2d 613 (9th Cir. 1989)

Carlos HERNANDEZ; Emilio Chalita, Plaintiffs-Appellees,v.Yong Hoon CHO; Jeong Hae Cho; Royatex International, Inc.,dba Rotex International, Inc.; Edwin D. Hausmann;Miriam U. Moore, Defendants- Appellants.

No. 88-5598.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 8, 1988.Decided Jan. 30, 1989.



Plaintiffs' attorneys, Morgan, Lewis & Bockius ("Morgan"), obtained the defendants Chos' tax returns from the Chos' accountant. Defendants' attorneys, Levinson & Lieberman, Inc. ("Levinson"), claimed a "taxpayers' privilege," and sought return of the documents and imposition of sanctions for abuse of discovery. Morgan sent Levinson a letter pointing out that the privilege upon which the motion was premised is not recognized under federal law. Undeterred, Levinson re-noticed the motion. The district court denied it and granted Morgan's motion for Rule 11 sanctions. Levinson appeals.

"Rule 11 sanctions shall be assessed if the paper filed in district court ... is frivolous, legally unreasonable, or without factual foundation, even though the paper was not filed in subjective bad faith." Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 (9th Cir. 1986). When Rule 11 is violated, sanctions are mandatory. Unioil, Inc. v. E.F. Hutton & Co., Inc., 809 F.2d 548, 559 (9th Cir. 1986).

If Levinson believed Morgan's discovery of the tax returns was improper because the documents were privileged or irrelevant, Levinson's remedy was a motion for a protective order under Rule 26(c). See 9 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2457, at 430 (1971).

The motion Levinson filed incorrectly stated the action was in diversity, and therefore California law, which barred discovery of the tax returns, applied. The case was not a diversity action. Jurisdiction was alleged under "Section 27 of the Exchange Act, 15 U.S.C. § 78aa; Section 22 of the Securities Act; 15 U.S.C. § 77v; and the principles of ancillary and pendent jurisdiction." All of the individual parties are aliens.

Federal law controls the discoverability of tax returns; under federal law, tax returns are not privileged from discovery, Heathman v. United States District Court, 503 F.2d 1032, 1034-35 (9th Cir. 1974). Levinson asserts Heathman "recognized a general federal policy limiting disclosure of tax returns to 'appropriate circumstances' " and argues the circumstances of this case did not warrant discovery of the returns. This is an unjustifiable reading of Heathman. That court stated:

We hold that 26 U.S.C. § 6103(a) (2) only restricts the dissemination of tax returns by the government and that this section does not otherwise make copies of tax returns privileged.

Defendants also argue that the discovery of their copies of their tax returns violates their right of privacy and their right to be free from unreasonable searches and seizures. Neither of these contentions is supported by any authority. There is no merit in these constitutional claims.

503 F.2d at 1035. If, in light of this language, there could be any doubt Heathman held tax returns unprivileged, that doubt would be dispelled by Judge Chambers' concurrence which objected to the holding that tax returns are unprivileged. See id. at 1035 (Chambers, J., concurring).

Levinson makes the bare assertion the returns were irrelevant, but presents no argument that they are outside the broad scope of discovery established by Fed. R. Civ. P. 26(b). Compare Heathman at 1035.

Levinson argues that Morgan acted improperly by obtaining the tax returns ex parte before Levinson could object to production of the documents. Morgan's conduct is not before us. It would not in any event justify the filing by Levinson of an unfounded motion.

Levinson's motion rested on inapplicable state law and an unsupportable reading of federal law. It was not "warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law."

Although the amount of sanctions imposed can be set aside for abuse of discretion, Zaldivar, 780 F.2d at 828, Levinson claims no such abuse and the record reveals none.

Morgan argues this appeal is frivolous and sanctions should be imposed under Fed. R. App. P. 38. See Hewitt v. City of Stanton, 798 F.2d 1230, 1233 (9th Cir. 1986) (per curiam). An appeal is frivolous, however, only "if the result is obvious, or the arguments of error are wholly without merit." Id. While appellants' arguments are ultimately unconvincing, they are not so completely meritless as to justify sanctions.



This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3