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Millennium Marketing Group LLC v. United States

Citations: 238 F.R.D. 460; 67 Fed. R. Serv. 3d 20; 98 A.F.T.R.2d (RIA) 7657; 2006 U.S. Dist. LEXIS 82644; 2006 WL 3479529Docket: No. CIV.A. H-06-00962

Court: District Court, S.D. Texas; September 29, 2006; Federal District Court

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The Court addressed the defendant United States of America’s motion for a protective order and the plaintiffs, Millennium Marketing Group, LLC and The Millennium Multiple Employer Welfare Benefit Plan’s cross motion to compel production. The Court denied the United States’ motion and partially granted and partially denied Millennium’s motion. 

Millennium Marketing Group, a Mississippi limited liability company, sponsors The Millennium Multiple Employer Welfare Benefit Plan, a taxable trust domiciled in Oklahoma, funded by multiple employers. The plan seeks favorable tax treatment under the Internal Revenue Code. In October 2004, Millennium requested a Private Letter Ruling from the United States to determine if the Plan met the tax code requirements, leading to discussions between the parties. However, in mid-2005, the United States halted communication and began auditing Millennium Plan participants, subsequently identifying the Millennium Plan as potentially abusive in a list shared in July 2005.

Millennium raised concerns about the disclosure of information to third parties and was advised to submit a Freedom of Information Act (FOIA) request, which it did in October 2005. The United States then launched a “Global Settlement Initiative” targeting abusive transactions, including those related to Millennium’s Plan. By December 2005, the IRS indicated it could not respond to the FOIA request within the required timeframe and informed Millennium of its right to litigate. Millennium filed a lawsuit in March 2006, alleging violations of the Internal Revenue Code, Privacy Act, and FOIA, claiming wrongful disclosures regarding the Plan’s status as an abusive tax shelter. The United States denied any wrongful actions.

In support of its protective order, the United States contended that Millennium cannot seek through discovery the same documents covered by the FOIA request and asserted that Millennium’s discovery requests were irrelevant and unlikely to yield admissible evidence.

Millennium argues against the necessity of a protective order and has filed a motion to compel the production of documents, including a privilege log and answers to interrogatories from the United States. Millennium asserts that the Freedom of Information Act (FOIA) cannot be used by the United States to withhold documents relevant to its wrongful disclosure claim, as the government has not provided legal justification for this position. It emphasizes the relevance of its discovery requests, which pertain to disclosures of tax information about Millennium, and contends that the United States has not adequately described the withheld information to assess its relevance.

The document outlines the standards for discovery under the Federal Rules of Civil Procedure, emphasizing that parties may obtain discovery of relevant, non-privileged information. While courts have broad discretion over discovery matters, federal law acknowledges a qualified privilege for confidential government information. The distinction between FOIA and civil discovery is noted, highlighting that FOIA aims to promote government transparency, while both processes serve different purposes. Although certain information may be exempt from FOIA disclosure, such exemptions do not automatically preclude discovery.

If a protective order is denied, the court may compel discovery. The United States contends that allowing discovery would interfere with the FOIA process and has not sufficiently demonstrated the applicability of FOIA exemptions.

The United States has not cited any FOIA exemptions or provided descriptions of withheld documents, which hampers the Court's ability to assess the legitimacy of the withholding. The United States claims that Millennium's FOIA request precludes discovery of the same documents and asserts that the requested documents are irrelevant to the claims. However, Millennium argues that its requests are pertinent to its unlawful disclosure claim, detailing that they involve third-party contacts made by the United States regarding Millennium, which relate to willfulness and good faith in alleged Internal Revenue Code violations. The United States has failed to substantiate its claim of irrelevance or to provide specific grounds for withholding information. Furthermore, the United States has not demonstrated good cause for a protective order, as it has not described the specific documents withheld. While Millennium has made a good faith effort to resolve disputes, its requests include information that may relate to the Internal Revenue Service's deliberative process, allowing for potential withholding under discovery rules.

Millennium's motion to compel discovery is partially granted and partially denied due to the inclusion of potentially privileged information in its requests and the lack of specific grounds provided by the United States for withholding discovery. The Court denies the United States' motion for a protective order since it failed to specify or describe the withheld items. Millennium's motion is also partially denied, acknowledging that some requests may be exempt from discovery. The United States is ordered to produce a privilege log or Vaughn Index within 30 days to assist the Court in determining the validity of its withholding, as well as any non-privileged documents within the same timeframe. Millennium's Privacy Act claim was dismissed without prejudice, and it is currently working to join additional plaintiffs. The United States admits the necessity of providing the privilege log for the Court's review.