CIB ordered to give deposition in IRS-Simon lawsuit over Pacers deal

Indianapolis' Capital Improvement Board has failed in its effort to avoid getting entangled in a legal dispute between the IRS and Mel Simon’s widow stemming from Mel’s sale of his half of the Indiana Pacers to his brother Herb in 2009.

CIB attorneys late last year filed a motion in federal court seeking to quash an effort by the IRS to depose former CIB presidents Pat Early, Bob Grand and Ann Lathrop about what they learned about the Pacers’ finances during discussions with the team on a variety of matters, including Bankers Life Fieldhouse lease terms and capital projects. The motion argued that requiring the busy executives to sit for depositions would be “overly burdensome.”

In a ruling Tuesday, Indianapolis Magistrate Judge Tim Baker essentially fashioned a compromise, ruling that the IRS could depose just one of the three former presidents but would get to pick which one. The CIB had sought to get all the executives off the hook.

The legal skirmish is an outgrowth of a lawsuit Mel Simon's widow, Bren Simon, filed in March 2015 seeking to overturn the IRS' determination that Mel's sale of his half of the team to his brother Herb in early 2009—just months before Mel died at age 82—was such a sweetheart deal that Mel effectively provided an $83 million gift. That conclusion left Bren with a $21 million gift-tax bill, which she paid under protest but hopes to get refunded by winning the suit.

Although that case is pending in federal court in Colorado, where Bren has a residence, the CIB filed its motion to quash in federal court in its hometown of Indianapolis. In statements accompanying the motion, the three executives asserted that they do not recall specific information about the value of the team during the period relevant to the Bren Simon lawsuit. They also said what information they do have merely duplicates what the IRS has or is in the process of getting from the Pacers and Simons.

"The key issue in the underlying … litigation is whether Melvin Simon had donative intent—i.e. the intent to make a gift to Herb Simon—nearly seven years ago when the Simons reorganized the ownership structure of the Pacers," the motion to quash says. "None of the CIB Former Board Members possess any information about Mr. Simon's intent with respect to the reorganization."

In his ruling, Baker wrote that “both sides argued persuasively for their positions. For example, the IRS points to case law demonstrating that important or busy people do not get a pass from complying with a subpoena”—a legal reality he pointed out even applies to the president of the United States.

Further, Baker wrote that the IRS has taken steps to prevent the depositions from being unduly burdensome. “The IRS has offered to reschedule (the now postponed) depositions to a time more convenient for the witnesses, the depositions are to be taken in Indianapolis, where the deponents live or work, and the depositions are not anticipated to last longer than four hours. Thus, the CIB cannot rely on deponents’ busy schedules to completely thwart IRS efforts to obtain deposition testimony."

Baker said that if the IRS finds it doesn't get what it needs from the one deposition, it can come back to the court and argue for deposing one or both of the other executives.

Bren’s attorneys contend in her lawsuit against the IRS that Mel received “full consideration” for his half of the team. They said in a court filing that “Herb and Mel were savvy and experienced businessmen, both skilled in making business deals and interested in striking the best deal for themselves.”

Early, Grand and Lathrop are described in the motion to quash as holding "high-profile and demanding leadership positions" and also being active in civic affairs. Each gave a statement saying that "attending a deposition in this matter would pose a substantial burden and hardship on me. My schedule is very rigorous."

Early, president of the Somerset CPAs and Advisors accounting firm, was president of the CIB from 1994 to 1999 and was vice president from 2000 to 2009.

Grand, managing partner of the Barnes & Thornburg law firm, was CIB president from 2008 to 2010.

Lathrop, chief marketing officer and office managing partner for the Indianapolis office of the Crowe Horwarth LLP accounting firm, was CIB treasurer in 2008-2009 and president from 2010-2015.

The CIB—which owns Bankers Life Fieldhouse in addition to Lucas Oil Stadium, Victory Field and the Indiana Convention Center—is funded by a stew of local and regional taxes, many of them generated by visitors to the area.