A recent decision from the Western District of Washington illustrates the qualified nature of the privilege against producing tax returns, as well as the hazards of continually testing the court’s patience during discovery. Luken v. Christensen Grp. Inc., No. C16-5214 RBL, 2018 U.S. Dist. LEXIS 48363, at *21 (W.D. Wash. Mar. 23, 2018).
Plaintiff Luken sued the owners and officers of a luxury yacht builder, Christensen Shipyards for, among other things, the alleged breach of a 2001 guaranty agreement. The defendants contended among other defenses that Luken received all payments required under that agreement. To help prove their theory, they requested Luken to produce, among other financials, 10–15 years of tax returns. Luken objected. He argued that much of the financial information had been already been produced, that the request covered an unreasonably long timeframe, and that many of the requested documents contained information unrelated to the litigation. The defendants argued that the claims and defenses put Luken’s own finances squarely at issue, and that the documents sought were necessary to defend against those claims.
The court granted the defendants’ motion to compel. Noting that tax returns “do not enjoy an absolute privilege from discovery,” the court found precedent for a two-part test to determine when their production may be compelled. The requesting party must show that the returns are relevant and that the information contained in them is not readily obtainable by other means. The court found that those criteria were met. The tax returns would help show whether the guaranty agreement was satisfied. Luken “cannot advance the claims that he does,” the court stated, “while shielding relevant and highly pertinent information from discovery.”
The court’s relevancy analysis is not lengthy or detailed. Evidently, Luken hurt his chances in the dispute by losing three previous discovery battles that the court found vexatious. Emphasizing its loss of patience with Luken and his counsel, the court awarded nearly $10,000 in attorney fees to the defendants. One take-away from this case is that a party’s unreasonable conduct in one discovery dispute has a spill-over effect in the next one.
Dillon Hobbs is an associate with Gaines Gault Hendrix P.C. in Birmingham, Alabama.