Nick Popovich v. Indiana Department of State Revenue, 17 N.E.3d 405

Background

Popovich mailed his 2003 Indiana individual income tax return in January 2005; he expected certified mail but it was mailed first-class. His ex-wife separately mailed her 2003 return certified on Feb. 1, 2005, bearing certified tracking number 7001 2510 0004 5406 1415.
The Department audited Popovich and issued a Proposed Assessment for 2003–2005; timeliness of the 2003 assessment turned on the return mailing/receipt date.
At an administrative protest hearing in March 2009, the hearing officer said she would retrieve Popovich’s 2003 transmittal envelope from storage; the Department later relied on a transmittal envelope showing a Feb. 1, 2005 postmark to justify timeliness.
In discovery, Popovich sought production/inspection of his 2003–2005 transmittal envelopes; the Department produced a photocopy of a transmittal envelope bearing the certified number 7001 2510 0004 5406 1415 and said it did not have the 2004–2005 envelopes.
Popovich suspected the Department had produced his ex-wife’s envelope as his; inspections and depositions occurred, discovery disputes followed, and Popovich moved for Trial Rule 37 sanctions (default judgment, costs, fees) alleging spoliation, misrepresentation, and obstructive discovery conduct.
The Tax Court held a hearing and denied Popovich’s motion, concluding Popovich did not prove a statutory or self-imposed duty to preserve the envelope nor that the Department intentionally or negligently spoliated or substituted envelopes, and that default judgment was not a just sanction.

Issues

Issue	Plaintiff's Argument (Popovich)	Defendant's Argument (Department)	Held
Did Dept. have a statutory duty to preserve the 2003 transmittal envelope?	Retention Schedule and statutes require six-year retention of tax returns; transmittal envelopes are part of the return.	The retention rules/statutes cover tax return forms, not mailing envelopes; Dept. never interpreted the schedule to require envelope retention.	No statutory duty: "tax return" means the reporting forms, not transmittal envelopes; Popovich failed to show statutory duty.
Did Dept. have a self-imposed duty to preserve the envelope after the 2009 protest hearing?	Hearing officer’s statement that she would retrieve the envelope created a duty to preserve it once timeliness issue arose.	The hearing officer’s comment was not a binding departmental commitment or policy and does not create a preservation duty.	No self-imposed duty: isolated hearing-officer remark insufficient to establish a duty to preserve.
Was there spoliation (intentional or negligent destruction/alteration) or substitution of evidence (ex-wife’s envelope for Popovich’s)?	Dept. lost/destroyed Popovich’s envelope and substituted his ex-wife’s envelope (same certified number) to cover up; discovery delays and inconsistent responses show concealment.	Dept. produced copies, retained/located items according to policy, and corrected database entries; no clear proof of intentional or negligent destruction or substitution.	No spoliation or substitution proved: court cannot infer intentional or negligent destruction or conspiracy to supplant envelopes from the record.
Are extreme sanctions (default judgment, all fees/costs) warranted for discovery abuses and alleged misrepresentations?	The Department’s discovery tactics, delays, evasive responses, and alleged false statements justify entry of default and full sanctions.	The conduct does not rise to level warranting dispositive sanctions; sanctions must be proportionate and just.	Denied: sanctions must be just and proportionate; record does not support default or award of all litigation expenses. Court will hold separate T.R. 37(A)(4) hearing on expenses.

Key Cases Cited

Gribben v. Wal-Mart Stores, Inc., 824 N.E.2d 349 (Ind. 2005) (discussing sanctions under Trial Rule 37 for discovery abuses)
Glotzbach v. Froman, 854 N.E.2d 337 (Ind. 2006) (defining spoliation and elements required to prove it)
Prime Mortgage USA, Inc. v. Nichols, 885 N.E.2d 628 (Ind. Ct. App. 2008) (discussing inherent authority to impose sanctions and proportionality)
Howard Regional Health Sys. v. Gordon, 952 N.E.2d 182 (Ind. 2011) (courts must consider spoliator culpability and prejudice in awarding sanctions)
West v. Goodyear Tire & Rubber Co., 167 F.3d 776 (2d Cir. 1999) (spoliation includes failure to preserve property for reasonably foreseeable litigation)
Loomis v. Ameritech Corp., 764 N.E.2d 658 (Ind. Ct. App. 2002) (spoliation doctrine does not apply to testimonial evidence)
Caylor-Nickel Clinic, P.C. v. Indiana Dep’t of State Revenue, 569 N.E.2d 765 (Ind. Tax Ct. 1991) (statutory language should be given its ordinary meaning)