New Jersey Court Adopts the Apex Doctrine, Quashing Notice in Lieu of Subpoena Directed to President and CEO
Business Litigation Alert
May 5, 2017
Michael T. Hensley
Michael T. Hensley
A recent New Jersey tax court opinion has expressly adopted the federal apex doctrine and quashed a subpoena for the deposition testimony of a high-level company executive. Recognizing that the issue of “whether and under what circumstances the deposition of a high-level or senior executive in a publicly traded corporation, or ‘apex deposition,’ may be obtained has not been directly addressed by any court in this state,” the New Jersey Tax Court considered federal court precedent in adopting the apex doctrine.
In HD Supply Waterworks Grp., Inc., et al. v. Dir., Div. of Taxation, Nos. 003035-2015, 003488-2015, 003492-2015, 2017 N.J. Tax LEXIS 1, at *1 (Tax Ct. Jan. 5, 2017), the defendant Director of the Division of Taxation denied the plaintiffs’ claims for refunds of taxes paid under the New Jersey Corporation Business Tax Act (“Tax Act”) for the 2007 to 2011 tax years. The plaintiffs brought suit alleging that they did not have the necessary substantial nexus to New Jersey to be subject to the Tax Act. The defendant thereafter served a notice in lieu of subpoena directed to Joseph DeAngelo, the plaintiffs’ President, Chairman and CEO. The plaintiffs filed the motion seeking to quash the notices and entry of a protective order barring the deposition.
Recognizing the competing interests in liberal pretrial discovery and the prevention of harassing discovery expeditions, the Tax Court noted that the exercise of discretion in pretrial discovery “rests with the trial court and must be cautiously navigated on a case-by-case basis.” While there is no rule of law which expressly exempts senior executives from being deposed regarding “relevant, first-hand, non-privileged information,” where the deposition will cause “annoyance, embarrassment, oppression or undue burden or expense,” the proposed deponent can seek protection from the court upon a showing of good cause. As R. 4:10-3 closely follows Fed. R. Civ. P. 26(c), the Court found it appropriate to consider the reasoning of federal decisions which, in this regard, have considered "(1) whether the deponent has unique first-hand, non-repetitive knowledge of the facts at issue in the case and (2) whether the party seeking the deposition has exhausted other less intrusive discovery methods." In what is now the first published New Jersey court opinion to directly address apex depositions, the Court held that the “standard by which the court will measure whether good cause exists to preclude an apex deposition, is whether the deponent has some unique, first-hand, non-repetitive knowledge of the relevant facts at issue.” The Court further held that the deposing party would similarly be required “to first seek discovery through other less intrusive means.” Thus, where defendant had already deposed a corporate representative with knowledge from the plaintiffs and where DeAngelo submitted an affidavit attesting, among other things, that he did not possess "personal knowledge of the specific legal claims or issues relevant to the litigation,” the Court found good cause for quashing the notices in lieu of subpoena. It should be noted that the Court did permit the service of limited interrogatories on DeAngelo.
Significantly, this opinion was originally issued by the court as an unpublished letter opinion and was thereafter approved for publication by the Committee on Opinions under the Guidelines for Publication under R. 1:36-2 which permits publication for, among other things, determination of a “new and important question of law.” This non-binding, but precedential decision may provide guidance to other trial courts when faced with high-level corporate employees who seek to be reasonably insulated from depositions.