Opinion · Appellate Division of the Supreme Court of the State of New York

Four Aces Jewelry Corp. v. Smith

Four Aces Jewelry Corp. v. Smith, 256 A.D.2d 42 (Appellate Division of the Supreme Court of the State of New York 1998)

Type
Opinion
Court
Appellate Division of the Supreme Court of the State of New York
Jurisdiction
New York
Date
1998-12-03
Topic
capital-markets-and-corporate-governance

How later courts describe this case

  • holding that a variance that existed between two different valuations of the same inventory was sufficient to establish an inference of fraud
  • applying New York's standard of showing "overriding necessity" to discover corporate tax returns

Citator

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Cited by
7 opinions

—Order, Supreme Court, New York County (Lorraine Miller, J.), entered January 8, 1998, which, insofar as appealed from, denied defendants’ motion to renew their prior motion to compel production of plaintiffs 1993 and 1994 corporate income tax returns, reversed, on the law, without costs, the motion granted and plaintiffs directed to produce their 1993 and 1994 corporate income tax returns.

While tax returns are not discoverable absent a showing of overriding necessity (Matthews Indus. Piping Co. v Mobil Oil Corp., 114 AD2d 772), here, defendants have made the requisite showing. That there was a substantial variance be *43 tween plaintiffs valuations of its inventory as of December 31, 1992, in a report to its insurer’s accountant, and as of March 31, 1993, in its application for insurance, creates a proper basis for compelling production of plaintiffs 1993 and 1994 tax returns. This variance between the two valuations raises at least an inference of possible fraud, overcoming our normal reluctance to order production of tax returns (see, e.g., David Leinoff, Inc. v 208 W. 29th St. Assocs., 243 AD2d 418, 419-420; Leon Sylvester, Inc. v Aetna Cas. & Sur. Co., 189 AD2d 730). Moreover, the denials by plaintiff’s principal and manager of any personal knowledge of the pre-incident inventory value, or personal involvement in either of the two valuations, leave a void as to the underlying financial position of the corporation for the periods in question. Concur — Sullivan, J. P., Mazzarelli and Saxe, JJ.

Rubin and Tom, JJ.,