Melea Limited v. Commissioner

Michael Ladney was the principal shareholder in several United States corporations. Switzerland-based Melea Limited (plaintiff) was incorporated in Gibraltar. Melea was a defendant (along with an unrelated company) in a federal patent-infringement suit in Florida in which depositions were taken to determine Melea’s relationship with two of Ladney’s corporations. Discovery in the Florida case was governed by a stipulated protective order that the Florida court approved. The protective order provided that (1) a party could designate documents as confidential, (2) documents classified as confidential could be disclosed only in the Florida litigation absent approval of the Florida court, and (3) the order survived the termination of the Florida litigation. The Florida suit was terminated in 1998. Melea also was embroiled in a dispute with the Internal Revenue Service (IRS) regarding the relationship between Melea and the two Ladney companies concerned in the Florida litigation. Melea filed a petition with the United States Tax Court against the IRS commissioner (defendant). In response to the commissioner’s request, Melea produced redacted copies of deposition transcripts from the Florida litigation relating to the relationship between Melea and the Ladney entities. The redactions reflected material that was classified as confidential. The commissioner moved to compel Melea to produce the redacted material, arguing that the Tax Court should compel its production because (1) the protective order reflected the Florida court’s approval of the parties’ agreement rather than its deliberate resolution of a controversy, (2) Melea originally was entitled to the relevant transcripts, (3) seeking relief from the Florida court would be burdensome and expensive and would inconvenience the Florida court, and (4) the Tax Court could continue the protective order’s protections. Melea responded that (1) the protective order was the product of the Florida court’s hearings and intervention to resolve the parties’ divergent positions and thus the court did more than just approve the parties’ agreement; (2) any of the Florida litigants could have designated the material as confidential (although there was no evidence that the redacted material exclusively came from another party); (3) notwithstanding the conceded burden and expense, the commissioner had to ask the Florida court for the redacted material; and (4) any Tax Court order had to protect proprietary business information.