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Johnson v. Soo Line Railroad Co.

United States District Court, N.D. Illinois, Eastern Division

August 27, 2019

SOO LINE RAILROAD CO., d/b/a/ Canadian Pacific, Defendant.

          Mary M. Rowland District Judge



         Defendant Soo Line Railroad Co. ("Defendant") has filed a Motion To Compel (D.E. 71) ("Mot.") seeking to compel Dalonno Johnson ("Plaintiff) to provide additional written discovery responses and to produce documents including certain of his federal and state tax returns, in this lawsuit alleging race discrimination in employment and retaliation claims under Title VII and 42 U.S.C. § 1981. Plaintiff alleges that while working in Defendant's Signal Department, he was subjected to racial discrimination and harassment that constituted a hostile environment and that led to his wrongful termination.


         This memorandum opinion focuses solely on Defendant's request to compel Plaintiff to produce his federal and state income tax returns from 2014 (the last year of his employment with Defendant) to the present. Mot. at 8 & Ex. C (Document Request No. 27). Defendant asserts that Plaintiffs federal and state tax returns from the years 2014, 2015, 2016, 2017 and 2018 are discoverable because they are relevant to the issue of whether and to what extent Plaintiff mitigated his damages. Plaintiff has objected to this request as an intrusion upon his privacy, as a request for privileged information, and as duplicative or cumulative. For the reasons set forth below, Defendant is ordered to produce his federal tax returns in his possession, for the calendar years 2015, 2016, 2017, and 2018, to the Court no later than September 10, 2019, for an in camera inspection so that the Court may determine which information from those materials, if any, must be produced to Defendant under an appropriate protective order.[1]


         I. Discoverability of Tax Information

         Tax information is not privileged from discovery. Rather, this information is subject to discovery under the proper analysis prescribed by Federal Rule of Civil Procedure 26(b)(1):

Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.

Fed. R. Civ. P. 26(b)(1); Poulos v. Naas Foods, Inc., 959 F.2d 69, 74 (7th Cir. 1992) (stating that it is well-settled that "[t]ax returns in the hands of a taxpayer are not privileged"). Although Section 6103 of the Internal Revenue Code forbids the IRS, with certain exceptions, to release tax returns to other government agencies, "the statute does not block access, through pretrial discovery or otherwise, to copies of tax returns in the possession of litigants; all it prevents is the IRS's sharing tax returns with other government agencies." Commodity Futures Trading Comm 'n v. Collins, 997 F.2d 1230, 1232-33 (7th Cir. 1993), citing St. Regis Paper Co. v. United States, 368 U.S. 208, 218-19 (1961). While "[s]ome courts have suggested that there is a heightened showing that must be made before tax returns are discoverable," such as a compelling need for the information and/or its unavailability from another source, "the Seventh Circuit has not adopted such a position" and has declined to impose a presumption against disclosure of tax returns in civil litigation. Jackson v. N'Genuity Enters. Co., No. 90 C 6010, 2010 WL 4928912, at *2 (N.D. 111. Nov. 29, 2010) (citing Poulos, 959 F.2d at 75.)

         II. The Relevance of Tax Returns

         Tax returns are relevant, for discovery purposes, where a litigant has put "the level and sources of his [or her] income at issue." Poulos, 959 F.2d at 74-75. In Poulos, the Seventh Circuit held that the district court did not abuse its discretion in ordering the production of the plaintiffs tax returns because the plaintiffs income was relevant to the amount of damages he claimed he incurred following his termination. Id. Similarly, in Fields v. General Motors Corp., No. 94 C 4066, 1996 WL 14040, at *3-4 (N.D. 111. Jan. 14, 1996), the district court granted the defendant's motion to compel production of the plaintiffs' tax returns where the plaintiffs' claims for lost profits over the defendant's alleged breach of contract placed in issue their financial injury and whether they mitigated that injury, and thus rendered their tax returns discoverable. See also Shay v. Lifting Gear Hire Corp., No. 12 C 1687, 2012 WL 6680313, at *2 (N.D. 111. Dec. 21, 2012) (overruling the plaintiffs objection to producing his "personal W-2 and tax return statements" in age discrimination suit on the ground that this information "bears on the issue of mitigation and, therefore, must be produced.") In Evans v. Allstate Ins. Co., 216 F.R.D. 515 (N.D. Okla. 2003), the court distinguished Fields and declined to order production of personal tax returns because the plaintiffs in Evans had not placed their income in issue, as they were not seeking damages in the form of lost income, but rather financial loss to the value of their home in a lawsuit against an insurer over coverage for losses from two fires that had damaged the home. 216 F.R.D. at 517-18. No. such distinction may be made here, because Plaintiff is seeking, in this employment discrimination matter, "back pay" as well as "lost wages" and "front pay." Complaint (D.E. 11) ¶ 16(f-g). As such, Plaintiff has put "the level and sources of his income at issue" such that his tax returns are relevant to calculate any damages. Poulos, 959 F.2d at 74-75.

         In support of its request for Plaintiffs tax returns, Defendant did not cite any case authority concerning the discoverability of Plaintiffs tax returns. Defendant, in its motion, appeared to assume that relevance was the only hurdle it needed to clear, in that Plaintiff is said to have produced only tax "transcripts" for 2014-18 and W-2 forms for 2014 and 2015, and the need for "full and complete" copies of Plaintiff s "entire" tax returns is, "frankly, self-evident." Mot. at 9. "Obviously," Defendant argued in the Motion, Defendant is entitled to a "full copy to show the full extent of any income and benefits received from all sources." Id. Defendant's assertion that the relevancy was "self-evident" or "obvious[]" was not helpful, and the Court inquired further at oral argument, given the sensitivity of these types of documents, as noted further below. At oral argument on the Motion, Defendant stated that Plaintiffs tax returns for the years 2015-18 are relevant to show whether he mitigated his damages by seeking additional or "alternative" income, but counsel described the relevance of the 2014 tax year as covering only about three months at most, and Plaintiff has alleged he was terminated in January 2015.

         In short, the Court finds that Plaintiffs federal tax returns from the calendar years of 2015, 2016, 2017, and 2018 are relevant to his claims and to Defendant's defenses in this matter. But Defendant made an ...

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