JACQUELINE PARKS, Plaintiff, v. RICHARD MILLER, Defendant Case No. 18-3244 United States District Court, C.D. Illinois March 31, 2020 Counsel Trevor A. Wiles, John Flynn Deckert, Hansford & Deckert LLP, Champaign, IL, Candace Diana Hansford, Hansford & Deckert LLP, Chicago, IL, for Plaintiff. Melissa M. Leon, Gary D. Elliston, Sr., Dehay & Elliston, Dallas, TX, for Defendant. Long, Eric I., United States Magistrate Judge ORDER *1 This case is before the Court on Plaintiff Jacqueline Parks' (“Parks”) Motion to Compel Production of Documents (#31). Defendant Richard Miller (“Miller”) filed a response to Parks' Motion to Compel Production of Documents (#32). For the reasons set out below, Parks' Motion to Compel Production of Documents (#31) is GRANTED. Additionally, Miller's request for the Court to conduct an in camera inspection of the tax returns is GRANTED. I. Background Parks' Motion asks the Court to compel Miller to produce his personal tax returns and the tax returns for Envisionwise, LLC (“Envisionwise”) for the years 2011-2018. (Parks' Motion to Compel Brief #31, p. 2).[1] On September 5, 2019, Parks served a Request for Production on Miller and requested Miller's and Envisionwise's tax returns. (Parks' Motion to Compel Brief #31, p. 1). On October 7, 2019, Miller objected to the request. (Parks' Motion to Compel Brief #31, p. 2). Miller argued the tax returns were not relevant because the central issue of this lawsuit is whether Parks is an owner of Envisionwise, and the tax returns do not shed light on that fact. (Parks' Motion to Compel Brief #31, p. 2).[2] On December 19, 2019, Parks' sent Miller a letter arguing that the requested tax returns were relevant and discoverable. On January 3, 2020, Miller sent Parks a reply letter stating he would not withdraw his objection to the request for tax returns. In response, Parks filed this Motion to Compel. II. Analysis The Federal Rules of Civil Procedure outline the limits of discovery. Specifically, Rule 26(b)(1) states: 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. Fed. R. Civ. Pro. 26(b)(1). Additionally, the Seventh Circuit stated: “the district court is far better situated to pass on discovery matters [than the Seventh Circuit].” Searls v. Glasser, 64 F.3d 1061, 1068 (7th Cir. 1995). The Seventh Circuit therefore reviews a district court's discovery decisions for an abuse of discretion. Id. The Seventh Circuit has not specifically addressed whether tax returns are entitled to a heightened level of protection during discovery. Poulos v. Naas Foods, Inc., 959 F. 2d 69, 75 (7th. 1992) (“We express no opinion at this time on the validity or proper formulation of this policy against disclosure [of tax returns].”) However, the Seventh Circuit has stated: “Tax returns in the hands of a taxpayer are not privileged.” Id. Moreover, the Seventh Circuit has declined to adopt a rule that suggests a heightened showing is required for tax returns to be discoverable. Johnson v. Soo Line Railroad Co., 2019 WL 4037963 * 1 (N.D. Ill. Aug. 27, 2019). *2 Miller primarily argues the Court should exercise its broad discretion in discovery matters to deny Parks' Motion to Compel because Miller himself never put his or Envisionwise's income “at issue.” (Miller Response to Motion to Compel #32, p. 3-6). For the reasons discussed below, the Court finds that the tax returns are discoverable because they are relevant to Parks' claims, non-privileged, and proportional to the needs of the case. See Fed. R. Civ. Pro. 26(b)(1). A. The Relevancy of the Tax Returns Parks argues Miller's and Envisionwise's tax returns are relevant and discoverable for four reasons. First, Parks argues the tax returns may provide information to support a breach of fiduciary duty claim because the tax returns will show the extent Miller used Envisionwise's assets for his own personal gain. Second, Parks argues the tax returns may provide information on Parks' breach of contract claim because the tax returns may provide evidence that Envisionwise's servers did not require 7% of Envisionwise's gross proceeds.[3] Third, Parks argues the tax returns may help establish her unjust enrichment claim because they may establish that Miller wrongfully withdrew money from Envisionwise. Fourth, Parks argues the tax returns have general relevance because they will establish Envisionwise's net profits and general business expenses. In contrast, Miller argues that the tax returns do not provide relevant information; the information is available to Parks through other means; and Parks' claims are time-barred. 1. Fiduciary Duty The Court will only address the fiduciary duty claim because this alone is enough to establish whether the returns are relevant to any claim or defense.[4] To prove her claim for breach of fiduciary duty, Parks must show: “(1) that a fiduciary duty exists; (2) that the fiduciary duty was breached; and (3) that such breach proximately caused the injury of which the party complains.” Lawlor v. North American Corp. of Illinois, 983 N.E.2d 414, 433 (Ill. 2012) (citations omitted). Parks argues the tax returns may provide information to support her fiduciary-duty claim because the tax returns could show the extent to which Miller used Envisionwise's assets for Miller's own personal gain. (Parks' Motion to Compel #31, p. 4-5). Miller argues the tax returns are not relevant and would not help establish the breach of a fiduciary duty claim. First, Miller argues the fiduciary duty claim is time-barred because the claim arose in 2005 and the five-year statute of limitations lapsed in 2010. (Miller Response to Motion to Compel #32, p. 7). Second, Miller argues the information Parks seeks is already available to Parks through other means (i.e. monthly reports, credit card statements, and bank statements). (Miller's Response Motion to Compel #32, p. 7-8). First, Miller's statute of limitations argument is not a persuasive reason to bar discovery. Miller argues the fiduciary duty claim is time-barred because Parks' claim arose in 2005 and the five-year statute of limitations lapsed in 2010. (Miller Response to Motion to Compel #32, p. 7). However, Parks alleged that Miller breached his fiduciary duty every year from 2005 until 2018 by engaging in separate and distinct acts each year. For this reason, Miller's “time-barred argument” is not a persuasive reason to bar discovery relating to Parks' fiduciary duty claim. *3 Second, the information sought through the tax returns is not available by other means. The returns, which the Court reviewed in camera, show ownership interest in Envisionwise, payments to Miller for contracted management and outside services, and payments to subcontractors. All this is relevant to Parks' fiduciary duty claims. Miller argues that the returns are nevertheless not discoverable because the information is already available through Envisionwise's monthly reports, credit records, and bank records. But, Miller did not provide the Court with any assurances that the “monthly reports” are accurate.[5] Miller also did not explain why he believed the monthly reports, credit card statements, and banking statements contain all the information that Parks seeks from the tax returns. Lastly, Miller did not explain how the credit card statements, banking statements, and monthly reports are sufficient to demonstrate the same points that can be established through the returns. For these reasons, the Court holds that Miller's alternative-document argument is not persuasive. Miller also argued the tax returns are not “necessary or proportional” for purposes of discovery because they are irrelevant to the “central issue” of this lawsuit of whether Parks is an owner of Envisionwise. Miller implies that, unless the request for discovery will prove that Parks owns Envisionwise, the request is either irrelevant or not proportional to the needs of the case. Miller's argument ignores the language in the Federal Rules of Civil Procedure. Rule 26(b)(1) states: 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[.] Fed. R. Civ. Pro. 26(b)(1) (emphasis added). In other words, a party may obtain discovery on any information that is relevant to a claim provided the information is nonprivileged and proportional to the needs of the case. Here, Parks has established that the tax returns are relevant to her claims against Miller. Therefore, it does not matter that the tax returns do not address a “central issue” (i.e. ownership) of a case because that is not required by the Federal Rules of Civil Procedure. The tax returns are relevant to Parks' claims, and, from a relevance perspective, that is enough. In addition, the information in the returns is important to the outcome of the case. Miller argues that it does not address the central issue, whether Parks had any ownership interest in Envisionwise. There are other issues that are important to the outcome of this case. Assuming Parks is able to prove an ownership interest, she must then prove that Miller breached a fiduciary duty he owed to Envisionwise and that the breach resulted in damages. The information in the returns is both relevant and important to resolving these questions. Miller further argues that the returns are not subject to discovery because he did not put his income or Envisionwise's income at issue. According to Miller, returns can only be produced if the litigant himself puts his income at issue. It is true that courts have been reticent to require parties to produce tax returns unless they put their income at issue. Poulos v. Naas Foods, Inc., 959 F.2d. 69, 74 (7th Cir. 1992). There are significant statutes and cases that suggest a public policy warning against forced disclosure of income tax returns. Moreover, it seems unreasonable to indiscriminately compel a taxpayer to disclose this information merely because he has become a party to a lawsuit. Federal Sav. & Laon Ins. Corp. v. Krueger, 55 F.R.D. 512, 514-15 (N.D. Ill. 1972). *4 But whether Miller put his income at issue is not the only determining factor. Tax returns in the hands of a taxpayer are not privileged, so it does not require the type of waiver that Miller argues. Instead, the standard under Rule 26 requires that the information in the returns is relevant to either party's claim or defense and proportional to the needs of the case. If the information is relevant, the Court considers the confidential nature of the returns, whether the information is reasonably available through other less intrusive means, and how important the discovery is to resolving the issues in the case to determine whether production of the returns is proportional to the needs of the case. Whether the party himself put the returns at issue is a factor that the Court considers when evaluating proportionality. By putting the returns at issue, a party essentially admits that production is important to resolving issues in the case. However, just because a party's return information was put at issue by the opposing party's claims, does not dictate a finding that production is unwarranted. The question remains whether the burden of the proposed discovery outweighs its likely benefit. Here, as noted above, the information in the returns is relevant to the claim for breach of fiduciary duty. It is unclear that the return information is available through other less intrusive means. And, finally, the issue of confidentiality can be mitigated through a protective order, thereby reducing the burden of the proposed discovery. Accordingly, the Court holds the tax returns for Miller and Envisionwise from 2011-2018 are relevant and discoverable. III. Conclusion For these reasons, Parks' Motion to Compel Production of Documents (#31) is GRANTED. Additionally, Miller's request for the Court to conduct an in-camera inspection of the tax returns (#32) is GRANTED. The Parties are instructed to submit a proposed confidentiality and protective order to be entered in this case within 14 days of this order's entry. The Court has available for consideration a suggested form on the Central District of Illinois website. The proposed order shall include an “Attorney's Eyes Only” provision. The tax returns that are the subject of this motion shall be produced to Plaintiff's counsel within 14 days following entry of the confidentiality order and shall be marked and governed by the Attorney's Eyes Only provisions of that order. ENTERED this 31st day of March, 2020. Footnotes [1] According to Miller, Miller solely owns Envisionwise. In contrast, Parks argues that her and Miller each own 50% of the company. Parks argues these tax returns will help establish that she is a co-owner of Envisionwise. [2] Miller also argued that the request for the tax returns “invade[ed] the federal and constitutional privacy rights of [Miller], as he is the sole owner of Envisionwise.” (Parks' Motion to Compel Brief #31, p. 2). Miller does not explain what federal and constitutional privacy rights were violated. (Miller's Responsive Brief #32, p. 1-15). [3] Parks alleges that Miller informed her that Miller needed 7% of Envisionwise's gross proceeds to maintain the computer servers for Envisionwise. [4] Parks also argues that the returns are relevant to her breach of contract and Unjust Enrichment claims. Because the Court finds the returns are relevant and discoverable for the breach of fiduciary duty claim, the Court need not analyze their relevance to the other claims. [5] In contrast, there are some assurances that the tax returns are accurate because substantial legal consequences exist for misstatements in tax returns.